Charitable Contribution Deductions under the new TCJA

Ho Ho Ho! Everyone is writing about being charitable today to assuage that capitalist guilt. ‘Tis the season.

Charity my friends and loyal readers starts in the home. Be charitable and loving with yourself first and foremost. Nurture your soul. Make yourself a better human being – whatever that means. Once you’ve accomplished that…

Have an open heart-set and mind-set for the people under your own roof, help nurture their soul. Then – after your immediate family is secure – nurture the souls of the people you encounter when you inhabit space/time in your daily activities.

It really is that simple IMHO. Capeesh!

Enough with the hippie mumbo jumbo, 🙂 at the end of the day we must be driven by the numbers.  What really matters in your skin here and now is the $$$ – the tax savings of being charitable while you walk the Earth.

The biggest change to the individual charitable contribution deduction coming out of the laughable Tax Cut & Jobs Act (TCJA) is that the Adjusted Gross Income (AGI) threshold limitation for gifts to public charities was increased to 60% from 50%.

What does this mean?

To many of us NOTHING.

Its a charade!

We’re going to be charitable no matter what because we are good human beings.

For those wishing to discern the nuance however:

1. Historically the deduction for your individual charitable contribution has historically been limited to 50% of your adjusted gross income (AGI).
2. Any additional charitable contributions over 50% of your AGI made in the tax year can be carried over to be used as a charitable deduction in future years.
3. Now under the TCJA for contributions made after 2017 and before 2026, that 50% adjusted gross income (AGI) limitation under Code Sec. 170(b) for cash contributions to public charities and certain private foundations is increased to 60%.
4. Additionally, contributions exceeding the 60% limitation are generally allowed to be carried forward and deducted for up to five years, subject to ceilings in those later years.

Remaining the same as before is that the claimed percentage deduction still depends – generally speaking – on three factors:

1. the type of organization to which the contribution was made,
2. whether the contribution was made “to” or merely “for the use of” the donee organization, and
3. whether the contribution consisted of capital gain property.

Other considerations:

Beware of fraudsters claiming to be charitable organizations.

Use the IRS’ Tax Exempt organization search tool found here ->

https://www.irs.gov/charities-non-profits/tax-exempt-organization-search

Charitable deductions are disallowed for contributions of $250 or more without a written acknowledgment signed and dated by a responsible party from the donee organization.

Get that written letter signed by an officer of the qualified charitable organization.

Charitable contribution deductions for payments made to colleges or universities for the right to purchase tickets or seats at athletic events has been eliminated.

IRS Publication 526 is a good resource for more information on contribution base and applicable percentage contributions or to do a deeper dive into the abyss.

Noncash or in-kind charitable donations should not be overlooked as these items can really add up over time, particularly as we clean out closets or when a loved one moves.

Noncash or in-kind charitable donations are reported on IRS Form 8283 and also require receipts found here

6 General conclusions:

1. Under the TCJA, there is a disincentive to spend disposable income on charity because of the reduced personal benefit.
2. Individual taxpayers will now be more likely to spend money on personal wishes, not charitable donations.
3. Increasing the charitable contribution limits to 60% of adjusted gross income (AGI) is also a false sense of incentive.
4. Most individual taxpayers do not reach the prior limits of 50%, and as such, the increase to 60% is irrelevant.
5. In substance, the new tax law is a disincentive to the expected level of donations to charitable contributions.
6. Many states including Colorado allow for a charitable deduction from state taxable income even if you do not itemize your deductions of the federal income tax form via Schedule A

Please feel welcome to contact me for a further drill down on this topic as you see fit.