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December 28, 2018

Tax Cuts and Jobs Act-Impact on Charitable Giving

Tax cuts and jobs act

The tax attorneys at Nardone Limited, in Columbus, Ohio, assist businesses and taxpayers with representation in tax examinations, audits, appeals, and civil litigation with the Internal Revenue Service (the “IRS”) and the Ohio Department of Taxation. As part of that representation, our tax attorneys advise taxpayers of the affects and consequences of changes to federal tax law. The recently enacted Tax Cuts and Jobs Act (“TCJA”) will affect charitable contributions made by taxpayers, as well as how taxpayers will strategize their contributions to ensure they are receiving the maximum benefits.

More Taxpayers May Choose
Standard Deduction Over Itemizing

During this time of year, many taxpayers consider making charitable contributions because those who itemize their deductions are entitled to deduct the amount of contributions made to qualified charitable organizations from their taxable income. Qualified charitable organizations are those that exist exclusively for the advancement of religious, charitable, or educational purposes. Congress allows taxpayers to deduct charitable contributions from their taxable income because it believes that a robust charitable sector is vital to the U.S. economy. The recent increase in the standard deduction, as a result of the TCJA, however may negatively affect Congress’ efforts to incentivize taxpayers to donate to charities going forward.

Nardone Limited Comment: Taxpayers should be aware that there are rules for substantiating different types of charitable donations. If audited or examined by the IRS, taxpayers must be familiar with the types of documentation required by the IRS. For more information on documentation requirements, as it relates to charitable contributions, see our blog article titled, “IRS Documentation Requirements Concerning Charitable Contributions.”

The TCJA increases the standard deduction for individuals from $6,350 to $12,000, and from $12,000 to $24,000 for married couples. Generally, if a taxpayer itemizes their deductions rather than taking the standard deduction, the tax deduction for charitable contributions helps to reduce the taxpayer’s taxable income. But, due to the increase in the standard deduction, it is much more difficult for itemizing taxpayers to meet the threshold of the standard deduction in order to benefit from itemizing their deductions. Professionals, however, suggest a strategy called “bunching” in order for taxpayers to still benefit from charitable giving. This strategy suggests that, rather than giving a smaller amount to charity every year, the taxpayer gives every other year instead. This way taxpayers are in a better position to get their itemized deductions over the standard deduction amount, and thus benefit from the charitable giving.

Nardone Limited Comment: The TCJA also increases the charitable contribution-base percentage (the taxpayer’s adjusted gross income) for deductions of cash contributions, for individuals, from 50% of the taxpayer’s contribution-base to 60%. Note, that cash contributions taken into account for purposes of applying the 60% limit are not taken into account again in applying the 50% limit for non-cash contributions.

Contact Nardone Limited

The tax attorneys at Nardone Limited have vast experience representing taxpayers involved in IRS audits and examinations. To the extent that you have questions regarding the effects of the TCJA or charitable tax deductions and substantiations, you should contact one of the experienced attorneys at Nardone Limited.

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December 28, 2018

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