As you consider your year-end charitable giving, it is important to understand the impact of the 2018 tax reform law. JF&CS has put together the following tax guide to help you make the most of your donation.
Income Tax Brackets
Whether you’re a single filer or a married person who files jointly, separately, or as head of household, you will likely fall into a new tax bracket.
The new law maintains seven tax brackets but lowers rates for most brackets. The new brackets are: 10, 12, 22, 24, 32, 35 and 37 percent. Most taxpayers will see their tax rate decrease. A married couple with a combined income of $150,000, for example, will go from a 25 percent tax rate to 22 percent under the new law.
You may be in a lower bracket this year and pay fewer taxes, which presents the opportunity to give more to the charitable organizations you care about, such as JF&CS.
Higher Standard Deductions
The new law nearly doubles the standard deduction to $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers. This means that you may be less likely to itemize on your taxes and use the income tax charitable deduction.
Also, as you plan your giving to JF&CS and other nonprofits, you may now have an incentive to give more in one particular year over another—exceeding the standard deduction and justifying the itemization of your charitable deductions.
If you elect to itemize this year, your deductions may look a little different. Although charitable deductions can be taken according to the new law, your ability to deduct state and local taxes will be limited to a total of $10,000.
Additionally, if you purchase a new home, there is now a cap on the mortgage interest deduction for the first $750,000 of debt on newly purchased homes.
Charitable Contributions for Cash Gifts
The new law increases the limitation of 50 percent of your adjusted gross income (AGI) for donations by cash, check, or credit card up to 60 percent. Higher net worth donors may want to consider increasing cash gifts.
Estate Tax Exemption
The threshold for triggering an estate, gift, or generation-skipping tax was raised to $11.18 million per person ($22.36 million for a married couple). Only an estimated 0.1 percent of estates will be subject to estate tax under the new law. (By comparison, the rates in 2017 were $5.49 million for individuals and $10.98 million for married couples.)
If you have a high net worth, you may no longer be subject to estate tax and have an incentive to make larger gifts during your lifetime to obtain an income tax charitable deduction instead of waiting until after your lifetime.
What’s the Same?
You will still be able to deduct your charitable contributions provided you itemize your deductions on your tax return. You may find that you’d prefer to use the standard deduction in lieu of itemizing.
Long-Term Capital Gains and Dividends
The tax rates on capital gains and dividends remain the same at 0, 15, and 20 percent, depending on your tax bracket.
Charitable Contributions of Appreciated Property
The limitation on charitable gifts of long-term appreciated property to public charities will remain at 30 percent of your adjusted gross income. You can still carry over any excess for up to five additional years.
What Does This Mean for Me?
The lower tax brackets may mean that you are in a better financial position to help others this year. Here are two smart ways to be charitable as we close out the year:
1. Donate appreciated property.
If your assets have experienced strong growth in recent years, consider a gift of appreciated property to JF&CS, a tax-exempt entity. You can eliminate capital gains tax and may qualify for an income tax charitable deduction.
2. Name JF&CS as a beneficiary of retirement plan accounts.
Assets in your IRA, 401(k), or other qualified retirement plan accounts remain subject to income tax when distributed to you and your heirs. If you name JF&CS as a beneficiary of all or part of your retirement plan, your gift will pass to JF&CS tax-free.
If you have questions, please contact Elizabeth Cahn, senior philanthropic advisor, at firstname.lastname@example.org or 978-884-0653. We’d be happy to help and can discuss how you can include JF&CS in your plans.
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