The new administration in Washington has brought a lot of changes. One of these key changes is the Tax Cuts and Jobs Act. On December 22, 2017, President Trump signed the bill and it became the new way that taxes will be handled. The legislation makes significant changes in many areas, and most families will be impacted in some way. One area that has changed is deductions for charitable giving.
The standard deduction has been greatly increased, nearly doubling for individual taxpayers. Married couples may now claim a $24,000 standard deduction, when filing jointly. Individual taxpayers now have a standard deduction of $12,000 instead of $6,350. As a result, more people are likely to claim the standard deduction instead of itemizing. This could mean that charities will see a drop in the number of contributions, as individuals will have less of an incentive to donate.
In addition, under the previous law, a person could deduct up to fifty percent of his or her adjusted gross income from his or her federal taxes for cash contributions made to public charities. A person who donated publicly traded securities to a public charity could deduct up to thirty percent of his or her adjusted gross income. The new law changes this. Under the new Tax Cut and Jobs Act, the person may deduct up to sixty percent of his or her adjusted gross income for cash contributions made to a public charity. There are no changes made to the deductions allowed for non-cash gifts. It is not yet clear how this will impact charitable giving. Although increasing the amount to sixty percent could be a positive change for charitable giving, when viewed in conjunction with the increased standard deduction, it may not have a substantial positive impact.
The new tax law has also repealed the “Pease Rule.” The Pease Rule provided that for high income taxpayers, the value of itemized deductions was decreased in value by three percent for every dollar of taxable income above a certain amount, i.e. $252,200 for a single person and $305,050 for a married couple. The value of the itemized deductions was capped at 80 percent of the total value of the itemized deductions. The new law does away with this rule, increasing incentives for high-income donors to continue to make charitable contributions.
The new tax law and charitable contributions interact in some complex ways. Contact us today at 720-420-1777 to talk about your giving and how the tax law impacts you.