Are Charitable Donations still Tax Deductible?

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By Austin Coyan, CPA, CFE

Not long ago there was a financial advantage, in some cases, when making a charitable donation to a qualified 501(c)3 not-for-profit organization.  The benefits went to the not-for-profit in the form of donations and then the donors could take a deduction on their tax return.   It’s a win-win, right? 

Decreasing Deductibility & Declining Smaller Donations

Many changes to the tax code were put in place when the Tax Cuts and Jobs Act of 2017 passed.  This included a change in the deductibility of charitable contributions to qualified 501(c)3 organizations on income tax returns.  Taxpayers may no longer be able to deduct charitable contributions to the extent they could in the past.

This is a cause for concern for many not-for-profit organizations.  According to the Fundraising Effectiveness Project, charitable giving increased in 2018 by 1.6% due to larger gifts from wealthier donors.  Donations from those who gave $1,000 or more increased by 2.6%.  However, donations from those donating smaller amounts decreased.  Donations between $250 – $999 decreased by 4.0%, and gifts below $250 dropped by 4.4% in 2018.

Aftershocks: What Can You Do?  

Many not-for-profit organizations rely heavily on smaller donors.  Even though overall donations increased nationally in 2018, there is still concern about what this trend could mean in the future. Let’s discuss a couple of approaches that not-for-profits can use when courting and retaining donors.

Deducting Qualified Contributions 

There are still two ways to deduct qualified contributions on one’s tax return, but fewer individuals will be able to use one of the methods due to changes in the tax law.

The first way to deduct charitable contributions is to report the contributions as an itemized deduction on a donor’s tax return. For 2019, the following items are allowed as itemized deductions:

  • Charitable contributions (up to 60% of AGI).
  • Medical expenses that exceed 10% of adjusted gross income (AGI).
  • Mortgage interest limited to $750,000 of debt.
  • State and local taxes up to $10,000 (This includes income taxes paid to a state or sales tax paid, real estate taxes on an individual’s property and personal property taxes paid on assets). The limit is $5,000 if married filing separately.
  • Casualty losses in a federally declared disaster area.

To itemize in 2019, an individual’s total itemized deductions from Schedule A will need to exceed the standard deduction which was increased to $24,400 for married filing jointly; $12,200 for single and married filing separately; and $18,350 for head of household. The standard deduction was increased in the Tax Cuts and Jobs Act of 2017 to simplify the tax code by reducing the number of individuals that will itemize. According to the Tax Foundation, only 10% of individual taxpayers itemized for tax year 2018 per the first set of tax return data released by the IRS.

Required Minimum Distributions

There is a second option for donors that do not itemize.  Taxpayers over 70.5 years of age that are taking required minimum distributions (RMDs) from their retirement accounts can have their custodian send their required distribution directly to a qualified nonprofit as a contribution. With the direct contribution from the custodian, the taxpayer can reduce the taxable amount of the total distribution on their tax return (with the proper paperwork) by the amount that was donated to the charitable organization.

With any new tax legislation, there are aftershocks.  The good news is that there are strategies you can use to ensure your nonprofit continues to succeed!  To learn more about the options available to you, contact your ABBB advisor.

NOTE: Any advice contained in this material is not intended or written to be tax advice and cannot be relied upon as such.  This communication cannot be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing, or recommending to another party any transaction or matter addressed herein.