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The new tax law has severely limited deductions for state and local taxes, and has completed eliminated miscellaneous deductions, leaving only medical, charitable, and home mortgage interest deductions as possible ways of reducing your taxable income.
The standard deduction has also been impacted by the new tax law, however, nearly doubling from the year before. As a result, most people will opt to take the standard deduction, which means they will be unable to realize any income tax benefit from their formerly itemized deductions, including their charitable contributions.
That said, there are ways to maximize your charitable deductions, especially for those claiming the standard deduction moving forward.
In this example, the taxpayers will claim the standard deduction in each year and will, therefore, receive no tax benefit from making the $8,000 annual charitable contributions.
As you can see, bunching leads to an additional $8,000 of deductions even though the total amount given to charity remains unchanged over the four years. For a taxpayer in the 37% tax bracket, the tax savings would be $2,960 merely by doing a little planning. This strategy can be combined with use of a donor-advised fund to more evenly spread the amount of funds passing to charity.
Remember too, as we discussed previously, that taxpayers who have an IRA and are over age 70½ can also make tax-free distributions directly to charity as another way of maximizing the benefit of their charitable contributions.
Timothy Barry is a partner at blumshapiro.com. He can be reached at tbarry@blumshapiro.com. Read more Your Taxes columns.
Our Facebook Live session with blumshapiro partner Timothy Barry and tax manager Christina Serle at the company's office in Quincy on March 4.