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How are Charitable Deductions Affected by the TCJA?

Posted by on November 27, 2018
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Generosity has its perks, or rather its tax benefits.

Keep in mind, taxpayers are able to easily itemize once they exceed their standard deduction. This typically happens by taxpayers claiming charitable donations along with any expenses they have. It then becomes greater than their standard deduction. However, the standard deduction is twice the amount for 2017.

Due to the Tax Cuts and Jobs Act (TCJA), taxpayers who itemize may face some difficulties next year.

Read on to find out what you can do to be prepared for next year!

“Bunching,” a word that people can’t stop talking about.

If you’re surfing the web for information on charitable donations, you might run into the term, “bunching.” It may be confusing, so we’re here to clear it up for you.

In order to bunch your donations, you double up on the charitable donations you would usually make in a year. Then, you take the standard deduction the following year.

For example, a head of household filer will have to tackle the new standard deduction of $18,000 for their 2018 taxes. If they claim the maximum threshold of $10,000 for their state and local tax deduction (SALT) and pay $3,000 in mortgage interest, they’ll need to donate over $5,000 to charities to surpass their standard deduction.

If they typically donate $2,500 each year in donations, they have to double this for one year and take the standard deduction the next year.

It is solely up to you in how much you increase your gifts to charity to surpass your standard deduction.

Check out the standard deduction for next year below.

The 2017 standard deductions were $6,350 for individuals, $12,700 for joint filers, and $9,350 for a head of the household status. Based on these previous filing statuses, you can easily itemize your deductions. On the other hand, below you will see what the standard deductions have changed due to the TCJA.

  • Single/Married Filing Separately – $12,000
  • Married Filing Jointly – $24,000
  • Head of Household – $18,000

As you can see above, you will need to adjust your normal donations to charity in order to go over the new standard deductions.

On the bright side, the limit for donating cash has increased.

Although itemized deductions are worrisome for taxpayers, they may have an advantage if they are donating cash to charities. They can now deduct their cash donations if it is 60% of their adjusted gross income (AGI) in contrast to the previous 50%.

Therefore, taxpayers who donate large amounts to charities or have a substantial amount of income that year will be able to deduct more.

A quick reminder of what you can deduct.

You can ONLY deduct donations to tax-exempt organizations and if you don’t benefit from it or receive anything in return. Here are some examples of possible eligible donations that you can deduct:

  • Religious organizations (Churches, temples, mosques, etc.)
  • Non-profit hospitals, schools, and cemetery companies
  • Veteran organizations (American Red Cross, Salvation Army, CARE, etc.)
  • Volunteer fire departments
  • Donations to federal, state or local governments
  • Qualified vehicles donated

Click here to locate your state and find out if the organization you plan on donating to qualifies as tax-exempt. (This downloads as a spreadsheet) In contrast to these, you cannot deduct individual donations to friends or family, foreign organizations, memberships, or donations affiliated with political organizations.

Don’t forget to keep your documents.

Make sure that once you donate over $250, get a letter of acknowledgment stating the date and the amount donated. For non-cash contributions between $250 to $500, you are required to include confirmation of your donation. If your non-cash contribution is more than $500, you will need to file Form 8283.

Keep an eye out for when you’ll be able to start your 2018 tax return in January with Priortax.

Did you file your 2017 taxes?


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