I Can’t Deduct My Charitable Contributions – What Can I Do?
By John L. Jenkins, AEP®, EA, CFP®, CFF
The new tax law has left many Americans frustrated because they cannot deduct their charitable contributions. In fact, the number of tax returns claiming deductions for charitable contributions was expected drop by more than 50% as a result of the new tax law. For 2018, about 15 million filers qualified for this deduction, compared with about 36 million for 2017, according to the Tax Policy Center.
Here is why. The standard deduction for 2018 was nearly double the level for 2017, rising from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for couples filing jointly. For 2019, it rises to $13,200 for singles and $24,400 for couples.
The standard deduction is the amount filers can subtract from income if they don’t list “itemized” write-offs for mortgage interest, charitable donations, state taxes and the like on Schedule A.
As a result, a filer’s itemized deductions for 2018 needed to be greater than new standard-deduction amounts for the filer to benefit from itemizing.
I still donate or tithe to my church and many other organizations.
What can I do if I have lost the ability to deduct my donations?
For charitable donors who want a tax break, there are ways around this change. One is to “bunch” donations every few years to surmount the higher standard deduction. They could itemize in those bunched years and claim the standard deduction in the years they don’t donate.
However, one overlooked strategy for those over age 70½ with IRA accounts is to transact a Qualified Charitable Donation (QCD). A QCD allows each taxpayer over age 70½ to contribute any amount up to $100,000 of IRA assets directly to one or more charities every year. While the amount given cannot be deducted as an itemized charitable deduction, it does NOT have to be included in income. In effect, you transfer some portion of your most heavily taxed asset completely tax-free because neither the taxpayer nor the charity pays tax on a QCD. In addition, the transaction meets your Required Minimum Distribution (RMD) for the year. This obviously implies that the amount given is not needed to support your lifestyle.
If you happen to be so fortunate as to not need some portion of your IRA funds to live on, a QCD would allow you to continue your philanthropy without interruption and in a very tax-efficient manner.