Taxpayers can deduct donations from their tax bills. In the past, donors had to file an itemized deduction for how much they gave to charity, but when lawmakers passed the Tax Cuts and Jobs Act last December, it overhauled the system and altered how taxpayers may want to approach year-end giving.
This year, the rules are different. Now it’s easier to qualify for those tax breaks.
Increased standard deduction
The standard deduction is now almost twice what it used to be. This year, individuals can claim up to $12,000 (an increase from $6,350) and joint filers younger than 65 can deduct up to $24,000 (a bump from $12,700) for things like medical expenditures, education costs, business outlays, and charitable gifts.
More taxpayers may opt for the standard deduction because it’s easier than itemizing.
Under the new laws, you must time your charitable contributions carefully. You may also need to donate more than usual to take advantage of itemized deductions.
3 strategies to consider
Here are some ways to approach year-end gifting under the new laws, with an eye on protecting your investments and supporting the causes closest to your heart.
- Bunch your donations
If you’re married and filing jointly and typically donate less than $24,000 to charity, one way to get more bang for your buck is to increase the amount you gift this year and push your deductions over the $24,000 threshold so you can itemize.
If you’re in a position to boost your donations this year, it may make sense to donate more, itemize, and then take the standard deduction next year.
- Don’t sell. Transfer.
If you sell shares of stock or bond funds and direct the proceeds to a charity, the sale is subject to capital gains tax—which reduces the tax benefit of your gift. You’ll be responsible for a tax on any profits you make from the sale as additional income.
Conversely, if you transfer shares of appreciated investments you’ve held for more than a year directly to a charity, you may receive a tax deduction. But, importantly, you also won’t have to pay capital gains tax.
If you’re older than 70½, you have to take a required minimum distribution (RMD) from your retirement fund. That withdrawal can be taxed as income. But transferring some or all of it to a qualified charity—up to $100,000 a year—wouldn’t be taxed.
- Look into a donor-advised fund
The new tax laws raised the limit of your adjusted gross income (AGI) you can claim as charitable donations. (AGI is your total gross income, minus any specific deductions.) Under the old laws, you could deduct 50% of your AGI; the new law increases the limit on cash donations to 60%.
A donor-advised fund (DAF) gives you the option to immediately claim a deduction. A DAF also lets you make grants to charitable organizations over time. You can also allow the account to grow as a way to leave a charitable legacy for your children to take over.
Vanguard Charitable is a leading, national public charity that offers donor-advised funds and can receive in-kind donations. A DAF allows you to create a portfolio from diverse investment options that span the risk spectrum, from conservative to aggressive. Through a DAF, you can recommend a grant to any 501(c)(3) public charity in the U.S.
A new, easier way to give in your DAF
The Vanguard Philanthropic Center makes charitable giving at Vanguard simple and convenient. Through this new platform, you can now donate to a Vanguard Charitable DAF directly through an eligible Vanguard account.
You can access the center through Vanguard’s Buy & sell page.
This platform also allows you to make your 2018 gift of Vanguard securities and/or mutual funds until December 31, 2018, at 3:59 p.m., Eastern time.
It pays to be generous. And while the tax rules may have changed, it doesn’t mean you have to be any less charitable this giving season.
All investing is subject to risk, including the possible loss of the money you invest.
Diversification does not ensure a profit or protect against a loss.
We recommend that you consult a tax or financial advisor about your individual situation.
Vanguard Charitable was founded by Vanguard as an independent, nonprofit organization. A majority of its trustees are independent of Vanguard. Although Vanguard provides certain investment management and administrative services to Vanguard Charitable through a service agreement, Vanguard Charitable is not a program or an activity of Vanguard.