Is the Charitable Deduction Gone?

The Tax Cuts and Jobs Act that was signed into law in the last days of 2017 did not, contrary to rumors, take away the deduction for gifts made to charities (nonprofit organizations). However, the law's effect is much the same. The reason is the near doubling of the standard deduction that is part of the new law (and affected tax returns for April 2019 and beyond).

Why Does the Change in Standard Deduction Affect Charitable Donations?

The standard deduction is an amount by which U.S. taxpayers are allowed to reduce the adjusted gross income (AGI) declared on their federal income tax return. Under previously existing law, the standard deduction (for 2018) was $6,500 for single taxpayers and married taxpayers filing separately, and $13,000 for married taxpayers filing jointly.

Under the amended law, the standard deduction for single taxpayers and married taxpayers filing separately rose to $12,000, and the standard deduction for married taxpayers filing jointly went up to $24,000.

For many U.S. taxpayers, this increase meant that it is more financially beneficial to simply take the standard deduction than to itemize deductions on their federal income taxes. Donations to charity are among the deductions that taxpayers can itemize.

Of course, not everyone who donates to charity does so in order to gain a tax deduction. But many were moved by this incentive, particularly toward the end of the year.

Did the CARES Act Bring Back the Charitable Deduction?

Starting in 2020, a small, temporary exception was created by Congress as part of the Coronavirus Aid Relief and Economic Security Act (CARES Act). Taxpayers who don't itemize were allowed to deduct up to $300 per year in charitable contributions "above the line," so long as the contributions were:

• in cash (as opposed to gifts of property such as used household goods), and
• given to a 501(c)(3) public charity.

Contributions to nonoperating private foundations, support organizations, and donor advised funds (DAFs) don't come within the new deduction.

Unfortunately, even after extensions, this CARES-Act deduction is scheduled to end following the 2021 tax year.

Other Ways for Donors to Gain Tax Benefits Through Donations to Charity

Tax experts also recommend that prospective donors look into the advantages of:

• Giving appreciated investments, such as stock shares. This allows donors to deduct the investments' full market value (subject to certain limits) without having to pay capital gains tax on the appreciation.
• Contributing through Individual Retirement Accounts (IRAs). For donors who are age 70½ or older, direct asset contributions of up to $100,000 can be counted toward their required yearly IRA distributions and will not be included in their taxable income.
• Making huge charitable gifts! At a certain point, your total contributions to qualifying nonprofits could be high enough that itemizing makes sense for you again. Of course, that's not for everyone--though some taxpayers might wish to donate in alternate years, giving little or nothing for one year and making large gifts the next. (Needless to say, charities are worried about the off-year results of this prospect, too.)

If you have other unusual factors at play in your tax situation, it's possible that you will choose not to rely on the standard deduction for other reasons, and would benefit from making charitable deductions as before. See a tax professional for more detailed advice and strategizing.