How Tax Reform Impacts Charitable Giving

As one of the few deductions to survive the 2017 Tax Cuts and Jobs Act, the charitable giving deduction warrants extra consideration by taxpayers inclined toward philanthropy.

Here are two ways you can leverage charitable giving to reduce your tax obligation:

1. BUNCHING With the standard deduction for married couples filing jointly jumping to $24,000, a standalone charitable gift below $24,000 will not create tax benefits. However, suppose Mr. and Mrs. Smith typically donate $15,000 a year to their favorite charity. Under the new law, if they decide to "bunch" their annual giving and donate $30,000 in one year, they would enjoy an additional $6,000 deduction. They could then take a break from giving the next year and take the standard $24,000 deduction. Plus, if the Smiths used donor-advised funds in their giving technique, the charity could still receive $15,000 each year, even with bunching.

2. QCD A Qualified Charitable Distribution (QCD) is an efficient way for IRA owners subject to required minimum distributions to give to charity. By sending the RMD amount directly to the charity through a QCD, they would both reduce their taxable income and eliminate the need to claim a deduction. The result is a tax form with less income reported and potentially lower Medicare income-based premiums, depending on what their income had been in the past.

For more information on donor-advised funds, QCDs and other tax-efficient gifting strategies, contact your Baird Financial Advisor.