3 Opportunities and A Challenge With The New Tax Law

Churches and charities continue to sift through the new tax law to discover how it affects them.  What are the opportunities and challenges particularly as it relates to charitable giving?

The Opportunities

  1. The new tax law allows for donors to give up to 60% of their adjusted gross income.  For example, if they make $100,000, they can give $60,000 and deduct the entire amount.  While many may not see this as an opportunity, it will provide a unique opportunity for major donors who are seeking to increase their giving.
  2. The law lowers the corporate tax rate from 38% to 21%.  That 17% drop means more profits but also more opportunity to give.  Whereas some corporations might have felt challenged to give in the past, the lower tax rate gives them that margin.
  3. The law kept in place the 30% deduction of capital assets.  So people can still deduct complex assets like real estate and even closely help business interests to maximize their income tax deductions.  This complex asset deduction should be read in light of the challenge below.

The challenge

The new tax law raised the standard deduction for individuals to $12,000 and $24,000 for married couples.  In addition, the SALT (state and local income tax) deduction was capped at $10,000.  So for many, the standard deduction and SALT cap may prove a hurdle difficult to overcome.  In other words, even with their giving and other deductions they may not be over the standard deduction.

How to address the challenge?  First consider encouraging donors to give complex assets to raise their charitable giving—whether it is the donation of a car, collectible, real estate or even a business interest, the inclusion of a complex asset may catapult deductions over the standard deduction.

Alternatively, donors can “bunch” their charitable giving.  One family who gives $10,000 a year told me that they doubled their giving to $20,000.  They put the $20,000 into a donor advised fund, and with the other deductions they had, they rose above the $24,000 standard deduction.  However, they’ll give $10,000 in calendar year  2018, and the remaining $10,000 in calendar year 2019, from their donor advised fund.  They’ll plan to use the same “bunching” strategy in 2020.

For more year end giving training resources click here.

About the Author:

Bill High is CEO of The Signatry, a global Christian foundation. He has coauthored Giving It All Away … And Getting It All Back Again: The Way of Living Generously with Hobby Lobby founder David Green. For more information on creative giving solutions, visit www.thesignatry.com/lifeway.