“I am not going to give to charity in 2018 because I can no longer receive a tax deduction for my gift.” This was the comment shared while I discussed the new 2018 tax laws with a development officer colleague who works at one of our great local nonprofit organizations.
Wanting clarification, I asked more questions to determine the context of the statement. It was made by an unnamed donor who felt he and his wife were not going to be able to give in 2018 to the organization that they had supported regularly for a number of years. He was basing his opinion on reports they had seen on TV and read in the newspaper.
In my mind there is a greater story to be told. Politics aside, for an overwhelming majority of people, the new tax law will increase their overall tax deductions and should put more money into their pockets. That money can be used, in whole or in part, to support their charities of choice.
For many, the new tax law is like getting credit for a gift they have not yet made.
Simply, the standard deduction in 2017 for a married couple who was filing jointly was $12,700. If you did not break that threshold with itemized deductions (charitable gifts, mortgage interest, etc.) that was the amount you were able to use.
In 2018, that standard deduction has been increased to $24,000 for married filing jointly. Thus, a majority of people will not reach that amount through itemization and will receive a larger deduction than they have experienced in the past.
In my many visits and interactions with nonprofits, an overwhelming majority of donors from our part of the world do not give solely for the charitable tax deduction. They give for the joy and fulfillment that comes in supporting life-changing organizations that are profoundly impacting those in need in our communities.
Here are other ways you can still efficiently and effectively continue to support the incredible nonprofit organizations in our region.
Give from your IRA accounts
If you are at least 70½ years old, the federal government allows you to give up to $100,000 annually, directly from your IRA (Individual Retirement Account) to the charity or charities of your choice. By doing so, you avoid the distribution being taxed as income. The gift also would satisfy your Required Minimum Distribution (RMD) for the year up to $100,000. Gifts must be made directly from the IRA custodian to the charity.
Gift appreciated stock
It is still very beneficial to give appreciated assets like stocks to charity to avoid paying capital gains tax. If you sell the appreciated asset, you have to pay capital gains tax on the transaction (current market value of the asset minus the amount paid for it equals capital gain). If you gift the shares to a qualified nonprofit, the nonprofit may sell the asset and not pay the capital gains tax on it. This makes your gift that much more impactful. Capital gains rates are approximately 15 percent to 20 percent under the new 2018 tax laws.
Take advantage of North Dakota Charitable Tax Credit
North Dakota is one of a few states that offers charitable tax credits to donors who give $5,000 or more to a qualified North Dakota charitable endowment in a single year. This is a 40 percent tax credit (not a deduction) and can be used in combination with the higher standard deductions in place under the new 2018 tax laws. Under this option, North Dakota state tax liability is reduced dollar for dollar and the maximum credit available is $10,000 for individuals and $20,000 for married filing jointly. The credits can also be carried forward for up to three years.
Pool assets for several years
With the new higher standard deductions, major donors may want to pool assets for a number of years to grow their charitable donation in excess of the $24,000 threshold to be made in any given year. This would allow you to take advantage of a greater itemized tax deduction.
Gift commodities like grain, beans, corn
The tax law still allows for farmers to deduct gifts of commodities to qualified charitable organizations. It needs to be a standalone transaction, meaning the gift must be made before the crops are taken to the elevator. This gifting option allows the farmer to not report the value of the gifted crop as income, thus avoiding income and self-employment taxes. In addition, the expenses incurred by producing the gift crop can be reallocated to the overall farm crop production on Schedule F in the year paid.
Charitable donations, tithing, and gifts are the lifeline of dedicated nonprofit organizations that mean so much to so many in our great community. These are just some examples of how donors may want to look at more effective gifting to qualified 501(c)(3) charitable organizations under the new 2018 tax laws.
At Heartland Trust Company we always recommend you consult with your personal tax advisor professional to determine how your gifting will impact your personal tax situation.
If you have any questions about these or any other gifting ideas or options available, please contact Heartland Trust Company. We are here to be a trusted resource for our clients and communities and welcome any opportunity to help you fulfill your philanthropic wishes.