Charitable Contributions and the New Tax Law

We're starting to read the new tax legislation document and upon looking at the charitable donations section, we see that deductions for charitable contributions will remain a tax deduction. So please do not stop your good deeds for any misunderstanding of the new tax law!

Where the headlines may be causing confusion (and consternation) about the charitable contributions deduction is simply that these headlines garner attention but are not explaining that it is likely to be an issue for those who previously exceeded the standard deduction by a small margin. Now that the standard deduction is doubling, itemizing your deductions on Schedule A (where the charitable contributions are deducted) may be unnecessary in order to reap a lower tax on the year (since the new standard is so high).

For example, if a MFJ couple had a mortgage at $8k, property taxes at $4k and charitable donations of $5k that collectively put them just over the standard deduction of $12,600 to $17,000 for itemized deductions. In this case, they would have filed the Schedule A and taken the $17k deduction instead of the $12,600 standard deduction.

With the new law providing for a MFJ couple’s standard deduction now at around $24,000, this is obviously a game-changer for the option of giving to charity. Such a couple might consider that – charity and its virtue aside – it benefits them in no way regarding their taxes to contribute the $5k (as in example above) to charity.

In general, how charitable giving impacts your tax return depends upon other deductions that you may or may not take on your tax return. All things considered, whether it provides a deduction for you or not, it's always good to consider the least among us and help out where we can.

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Saturday, 20 October 2018

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