Charitable Gifts and the New US Tax Code

Some non-profits reportedly fear a loss of donations after the changes to the US Tax Code last month. Why? Because the standard deduction has been doubled–to $12,000 for a single person or $24,000 for a married couple filing a joint return. That, in turn, may encourage many people to choose the standard deduction rather than itemizing.

Itemizing, it so happens, is the only way that charitable donations can be deducted (but see below on a legal way around this). I’m not quite sure of the logic that the primary reason people give to charity is that they can get a tax deduction. An itemized deduction does reduce taxable income and hence taxes paid–but is that really why people donate? Don’t they care about the programs, services or causes the charity provides or supports?

Anyway, there is one way to give to charity and still pay less in taxes: Give your RMD directly to charity. Here’s the deal: If you had a tax-deferred investment–like an IRA, once you turn 70 1/2, the IRS wants the taxes that you deferred and any earnings on that investment.  So you must take a required minimum distribution (RMD) from that account. It adds to your taxable income. If you have enough deductions (mortgage interest, state property and income taxes, medical expenses and charitable deductions) to exceed that standard deduction, then you itemize. You’d take that RMD, put it in the bank and donate the cash to the charity. If not, read on.

IF you receive that RMD and THEN give it to the charity, it’s taxable.  BUT, if you arrange to have that RMD go directly to the charity–never touching your hands or your bank account, it is not included in your gross income. Voila–your tax deduction survives, in a manner of speaking, and the charity still gets its money.

Talk to the RMD administrator and to the charity to set this up. Don’t want to give all of the RMD to the charity? Arrange for a percentage amount. Most account administrators have flexibility on dates, where the money is going, etc. Never fear that the charity won’t be happy to receive your money and work out the details with you and the administrator.

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7 thoughts on “Charitable Gifts and the New US Tax Code”

  1. My mind is spinning, John. This is one time I’m grateful for having so little money that I can’t even think about charitable donations. However, when I win the Publisher’s Clearinghouse Sweepstakes…

    1. Ah, c’est dommage. I wonder if the Clearinghouse has any better odds than Powerball or Mega Millions. Taxes were not too difficult before retiring; now they’re ridiculously complicated–not at all what I expected. The Greedy Old Plutocrats made it worse. But as Gloria Gaynor says, “I will survive.” If I were a woman, I’d be marching this weekend but I have faith activity to attend today anyway. That offers hope for the better days ahead. 🙂

      1. I’d love to see you out there marching, wearing a Dump Trump T-shirt and waving a Plutocrats Suck banner! ? (This is a smiley emoji, in case it turns into a ? when I post.)

  2. Interesting discussion. I think people will keep giving. It’s nice that companies are using their lower tax rate to offer bonuses between $1k and $3k to employees (over 2 million so far) and raising their minimum wage to $15 an hour (Yay, Walmart!). It’s just good business.

    1. Walmart went to $11, not $15. At 35-36 hours a week (considered a full work week for many employees but some do get as much as 40–typically overtime is discouraged and associates are often told not to come in if they’re approaching overtime) that’s a little over $20K. That qualifies for rent subsidies in apartments and SNAP (formerly known as food stamps) for those with a family. The top bonus is $1,000 for people who have worked there for 20 years or more. Meanwhile, they are laying many people off at Sam’s Club. My son works at Walmart and survives because he lives in a small town in New Mexico where he can rent his own (subsidized) apartment. In a metropolitan area, he’d need at least two, if not three roommates. I’m not knocking the economics of Walmart. Shoppers want the low-priced goods that stores like Walmart, Target and Amazon provide. We do too, despite the fact that much of those low-priced products come from China rather than American producers. Textiles (linens, clothing, etc.) and electronics will never come back. There’s nothing that any American politician can do to change that. If a handful of coal miners go back to work polluting the environment and their own lungs, they’ll be buying those same Chinese goods at Walmart, while the Walton family is able to pay less tax on their billions in income. My son, after a small raise, will find it eaten up by tax increases to enrich the Waltons and people like them.

What do you think? Please let us know.