The Tax Cuts and Jobs Act, an overhaul of the US tax code, took effect at the beginning of 2018 but continues to impact charitable bequests and contributions. The Act did not altogether eliminate charitable giving exemptions; however, it did alter the rules associated with this tax and estate planning tool. These changes, in turn, impact how people donate funds to charitable organizations and causes.
2019 Standard Tax Deductions
Under the 2019 guidelines, the standard tax deduction increased to $12,200 for individuals and $24,400 for married couples filing jointly. (That’s up from 2018, which was $12,000 for individuals and $24,000 for married couples). Additionally, an individual may now deduct their cash contributions to charities up to 60% of their adjusted gross income. (This percentage used to be 50% of adjusted gross income). This increase helps wealthy donors to give more money each year.
Taxpayers can only deduct the charitable donations on their annual tax filing if they itemize all of their expenses and donations. And, they should only itemize if their personal deductions exceed the standardized deduction (more than $12,200 per person or $24,400 for couples). With the standard tax deduction at its current rate, fewer people will likely want to spend the extra time on those itemizations. In fact, according to the Tax Policy Center, the number of tax returns claiming charitable deductions dropped approximately 30% from 2017 to 2018, as a direct result of the new tax act.
Nonprofit Organizations Affected
With fewer taxpayers incentivized to itemize their charitable donations, nonprofit and charitable organizations are taking major hits. According to Giving USA, total charitable contributions fell 1.7% from 2017 to 2018, while giving by individuals dropped by 3.4% between 2017 and 2018. Smaller donations (less than $250) dropped by 4.4%, as did the overall number of donors. That is the largest decline since the 2008 financial crisis.
Making Charitable Bequests in Your Estate Planning
One way to counteract the Tax Cuts and Jobs Act and keep your favorite charities up and running is to make a charitable bequest in your estate planning. A charitable bequest is a donation gifted by an individual’s estate, upon that individual’s death. Or, put another way, an individual can make a charitable bequest in their will or trust that certain funds be donated to a specific charity after they have passed away. Currently, estates worth up to $11.4 million per person, $22.8 million per couple, are exempt from the federal estate tax. Charitable bequests are not subject to this tax.
With fewer taxpayers subject to the estate tax, there is less incentive to make a charitable bequest. While charitable bequests have declined since 2017, they are still a viable way of donating money to organizations that help others in need.
Another way to continue supporting nonprofit organizations – while still receiving a tax break – is bunching the donations together. Instead of donating every year, and falling within the standard deduction, taxpayers can “bunch” those donations every two to three years. For example, let’s say Person A likes to donate $10,000 every year to their favorite charity. Under the 2019 standard deduction, they would not get a tax break for that contribution. But if Person A “bunched” their donations and gave $20,000 every other year, they can itemize that donation and receive a tax break those years.
If you have additional questions about charitable planning and bequests, please call our office at (770) 933-9009 or contact us online. Brian M. Douglas & Associates is a Real Estate, Estate Planning, Probate, and Business Planning firm located in Atlanta, Georgia. Our goal is to help our clients with compassion; we want everyone to leave our office feeling less stressed and grateful that they hired our firm to assist them with their legal needs.