by Dennis Mitzel
Charitable planning can be very different, depending on whether you are under or over the age of 70 ½.
The primary purpose of charitable giving is to support charitable causes, not to obtain tax benefits. Nonetheless, it is important to understand new changes in the US tax law so as to take advantage of tax deductions associated with charitable gifts. The age of 70 ½ can be a turning point in charitable planning because of these changes.
Under Age 70 ½: Change in Standard Deduction
One of the biggest changes in the new tax act was the doubling of the standard deduction: $12,000 for singles and married couples filing separately, $18,000 for heads of households, and $24,000 for married couples filing jointly. Many people who used to itemize deductions now find it advantageous to take the standard deduction. There are options for these people to consider:
- Continue your current pattern of charitable giving. Most people will likely continue their current pattern of charitable giving and then take the standard deduction, forgoing itemizing.
- Bunch charitable gifts. Some people might bunch their charitable giving, making two or three years’ worth of gifts in a single year. They can then itemize in that one year of giving and use the standard deduction in the alternate years.
One of the practical considerations of bunching is that the donor must have the funds to prepay contributions. This issue might be addressed by donating securities rather than cash. An added advantage is that the resulting deduction equals the fair market value of the stock without any need to report capital gain.
Some individuals might want to bunch donations in one year but have the payments distributed to charitable causes over time. One way to do this is through a donor-advised fund. A donor-advised fund is a charitable fund that allows a contribution to be made in one year and distributed over time according to the donor’s preferences. Donor-advised funds are offered by many foundations and most financial institutions.
Over Age 70 ½: Dramatic New Opportunities
Individuals who are over 70 ½ and have IRAs have a great opportunity under the charitable rollover rules. These individuals can transfer funds directly from their IRAs to a charitable organization without reporting the withdrawal as taxable income. This will give them a 100% income reduction for the amount of the gift. This benefit is so dramatic that most individuals over 70 ½ should make all charitable contributions from their IRAs.
If you are interested in learning how the new tax laws affect your situation, I suggest you meet with a tax advisor or financial planner.
Dennis Mitzel is an estate planning attorney with Mitzel Law Group PLC in Ann Arbor, Michigan, and a frequent speaker on estate planning and charitable giving. He is currently chair of the finance committee at his Catholic parish.
Barnabas Almsgiving Fund 