Tax tip:  Charitable donations after tax reform

Tax tip: Charitable donations after tax reform

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Tax tip: Charitable donations after tax reform
  #1  
Old 01-08-2018, 09:55 AM
Bloom&Company Bloom&Company is offline
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Default Tax tip: Charitable donations after tax reform

Charitable Donations after Tax Reform

The recent tax legislation increased the standard deduction to $26,600 if married, filing jointly and both are 65 years of age or older. Therefore, most people will no longer itemize their personal deductions.

Because of this new law, the tax-saving value of charitable contribution deductions is eliminated for many individuals. While the charity deduction remains available, it is an itemized deduction, and total itemized deductions must exceed the amount of the standard deduction to provide tax savings. The new law eliminates many itemized deductions and nearly doubles the standard deduction, so the benefit of itemizing will be reduced for many taxpayers.

Until now, many people who have taken taxable distributions from Traditional IRAs also have claimed charitable contribution deductions which offset the taxable income from their distributions. Going forward, they will be better off making gifts to charity by using Qualified Charitable Contributions (QCDs). Because QCDs are not included in income, the tax result of a QCD is much the same as from a deduction offsetting 100% of a taxable distribution.

For example, let’s say your Required Minimum Distribution (RMD) in 2018 from your IRA is $20,000 and you want to make a $5,000 donation to a qualified charity. Have the IRA custodian pay $5,000 of your $20,000 RMD directly to the charity.

The result on your tax return will be to only show $15,000 (not $20,000) as income from an IRA distribution and you still get the new higher standard deduction of $26,600. This could save at least $600 if you are in the new 12% tax bracket or $1,100 if in the 22% tax bracket. Pretty good!

There are some minor restrictions on what qualifies as a QCD, but most will qualify. Also, the QCD is limited to only those over 70 ½ years old and the donations cannot exceed $100,000 in any one year.

If you would like to discuss your tax needs, please call Robert Bloom, CPA at 425 941 5224. I come to your home, meet with you and review your tax needs at no charge. If you want to work together, I will do your return, bring it back to you, and I am available throughout the year for questions and consultation. I am reliable, responsible, reasonably priced, and enjoy positive relationships with my clients and discussing taxes. I had a 35 plus year tax practice in Seattle, Washington with 1,000 clients, and focused on closely held businesses and individual returns. I am now licensed in Florida, I am a Villager, and focusing on those living in The Villages and greater Lady Lake area.

Bob Bloom, CPA 425 941 5224 bobbloomcpa@aol.com

  #2  
Old 01-08-2018, 11:01 AM
Boomer Boomer is offline
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Originally Posted by Bloom&Company View Post
Charitable Donations after Tax Reform

The recent tax legislation increased the standard deduction to $26,600 if married, filing jointly and both are 65 years of age or older. Therefore, most people will no longer itemize their personal deductions.

Because of this new law, the tax-saving value of charitable contribution deductions is eliminated for many individuals. While the charity deduction remains available, it is an itemized deduction, and total itemized deductions must exceed the amount of the standard deduction to provide tax savings. The new law eliminates many itemized deductions and nearly doubles the standard deduction, so the benefit of itemizing will be reduced for many taxpayers.

Until now, many people who have taken taxable distributions from Traditional IRAs also have claimed charitable contribution deductions which offset the taxable income from their distributions. Going forward, they will be better off making gifts to charity by using Qualified Charitable Contributions (QCDs). Because QCDs are not included in income, the tax result of a QCD is much the same as from a deduction offsetting 100% of a taxable distribution.

For example, let’s say your Required Minimum Distribution (RMD) in 2018 from your IRA is $20,000 and you want to make a $5,000 donation to a qualified charity. Have the IRA custodian pay $5,000 of your $20,000 RMD directly to the charity.

The result on your tax return will be to only show $15,000 (not $20,000) as income from an IRA distribution and you still get the new higher standard deduction of $26,600. This could save at least $600 if you are in the new 12% tax bracket or $1,100 if in the 22% tax bracket. Pretty good!

There are some minor restrictions on what qualifies as a QCD, but most will qualify. Also, the QCD is limited to only those over 70 ½ years old and the donations cannot exceed $100,000 in any one year.

If you would like to discuss your tax needs, please call Robert Bloom, CPA at 425 941 5224. I come to your home, meet with you and review your tax needs at no charge. If you want to work together, I will do your return, bring it back to you, and I am available throughout the year for questions and consultation. I am reliable, responsible, reasonably priced, and enjoy positive relationships with my clients and discussing taxes. I had a 35 plus year tax practice in Seattle, Washington with 1,000 clients, and focused on closely held businesses and individual returns. I am now licensed in Florida, I am a Villager, and focusing on those living in The Villages and greater Lady Lake area.

Bob Bloom, CPA 425 941 5224 bobbloomcpa@aol.com



It is going to be interesting to see the effect this will have on charitable giving.

Whether a retiree is charitably inclined or not, the RMD as a QCD could be well worth understanding as a potential vehicle for tax planning. An awareness of the Medicare income thresholds for higher premium costs could be a factor for some — that is if the rules stay the same for Medicare.

I know someone who, last year, was being given bad advice by his “financial planner” who was telling him the QCD could be made to a donor advised fund — which said “planner” had under management. (In fairness, the “planner” was not corrupt, but was simply ignorant of the facts. He caught it in time to do it right.)

I think tax planning in retirement is now more important than ever.

Thank you for your professional, and timely, heads-up.
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  #3  
Old 01-09-2018, 09:12 AM
Bloom&Company Bloom&Company is offline
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Excellent points. Thank you for reading and contributing! Bob Bloom, CPA 425 941 5224
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