The holiday season is upon us, and tis the season for giving. But with the new tax laws, the hurdle to deduct charitable contributions became higher. The standard deduction for 2018 is $12,000 for a single person and $24,000 for married couples filing jointly. So, if your itemized deductions (medical expenses subject to floor, state/local tax, mortgage interest, charitable deductions) are below the standard deduction, there is no tax benefit to contributing to charities.
Although the hurdle has increased, there are opportunities for individuals to give to charity and receive a tax benefit. Let's look at the different ways to give while being tax efficient.
The simplest way to give is cash. If you give to a public charity, you may deduct up to 60% of your adjusted gross income (AGI). This increased under the new tax law, which previously limited cash contributions to public charities at 50% AGI. In order to maximize the deduction, contribute cash every few years so the itemized deduction exceeds the standard deduction.
With the rise in the stock market, many people have appreciated stock. You can donate stock and receive a charitable deduction equal to its fair market value. This makes donating stock much more appealing than selling the stock and donating the proceeds. As under prior law, the donation of stock is limited to 50% of AGI. Like cash, one strategy is to contribute stocks every few years in larger amounts to maximize the tax benefit.
A great option for farmers is to gift commodities. Instead of selling commodities to an elevator or cooperative, the farmer can deliver the grain in the name of the charity. The charity gets the proceeds and the farmer does not report the sale of the grain.
There are a few benefits to commodity gifting. First, if the farmer does not gift enough to exceed the standard deduction, he or she can still receive a tax benefit. Second, gifting commodities removes them from income, and in turn, reduces self-employment tax. For farmers that give smaller amounts more frequently, commodity gifting may be the best method to donate to charities.
Finally, charitable remainder trusts (CRT) provide a tremendous ability to transfer a large amount of money to charities. I have previously written about CRTs, and the economic benefits for the donors, but in most cases, the remainder that goes to charities is rather large. And, if the donor contributes assets to the CRT with basis, that basis can be used as a charitable deduction if the donor itemizes. A CRT is not only a good exit strategy for retiring farmers, but also a great way to give to charity.
For my previous article on CRTs, visit:
Although this article looked at tax benefits from charitable donations, please remember donating is very important. Charities rely on donations to provide services to those in need, and not all decisions should be tax based.
Editor's Note: Tax Columnist Rod Mauszycki is a CPA and tax partner with the accounting firm of CliftonLarsonAllen, in Minneapolis, Minnesota. Send questions to email@example.com
If you'd like to learn more about how you can turn financial management into a competitive advantage, make sure to attend the DTN Ag Summit on Dec. 3-5 in Chicago. For a full agenda and registration details, visit www.dtnagsummit.com.
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