Will my Charitable Contribution Still be Eligible for a Deduction in 2018?

Nadine Adams, CPA

Senior Tax Manager

December 17, 2018

What are the changes to itemized and standard deductions?  

Individual taxpayers choose between the standard deduction and itemized deductions each tax year, depending on which is more favorable. If itemizing deductions is a more favorable result, it is usually due to home mortgage interest, state taxes, and charitable contributions.

With the Tax Cuts and Jobs Act, the standard deduction has been almost doubled. For married taxpayers who file jointly, it has increased from $12,700 to $24,000; for single taxpayers it has increased from $6,350 to $12,000.

Additionally, certain itemized deductions have been limited. For example, the state tax deduction is now limited to $10,000. By increasing the standard deduction and simultaneously placing limits on certain itemized deductions, Congress ensured about 90% of taxpayers will take the standard deduction starting in 2018.

Given the changes, what is a strategy I can use to deduct my charitable contributions?

One of the most effective tax planning techniques is to “bunch” charitable contributions into one year. For instance, a taxpayer may make a donation in December of 2018, and another in January of 2019. This taxpayer can bunch both donations into 2018, instead of splitting them between years. This way, if there are enough total deductions, the taxpayer can itemize in 2018 and take the standard deduction in 2019. This prevents taking the standard deduction both years and losing the tax benefit of the donations.

Do I need to consider my Georgia income tax return?

The state of Georgia uses the same concept of the standard deduction and itemized deductions, simply with different amounts than the federal return. Additionally, if a taxpayer uses the standard deduction for federal, he must use the standard deduction for Georgia. If a taxpayer uses itemized deductions for federal return purposes, he must use itemized deductions for Georgia. This provides for another planning opportunity.

For most taxpayers, itemizing Georgia deductions will be more favorable than taking the standard deduction for Georgia. Therefore, if a single taxpayer has $11,900 of federal itemized deductions, he would originally take the more favorable $12,000 standard deduction. However, the taxpayer could spend an additional $101 in charitable contributions for the year, pushing him to itemize on the federal return. This would also allow for itemizing on the Georgia return. This has the potential to save thousands of dollars in Georgia taxes, with only $101 of additional charitable contributions required.

Does what I donate make a difference?

When considering giving a gift to charity, most taxpayers immediately think of cash contributions and Goodwill donations. For cash contributions, your deduction is equal to the value of cash donated. For non-cash contributions, the deduction is equal to the fair market value of the property donated.

For typical Goodwill donations, the fair market value of the property is significantly lower than the original purchase price. However, some taxpayers have ownership of property that has appreciated over time, such as stocks, collectors’ items, and other luxury goods. If this property is sold, the taxpayer would include gain on his return for the selling price less original purchase price. However, if the taxpayer were to donate this property, he does not need to include the income, AND he gets a deduction for the entire fair market value of the property, not only the original purchase price.

What type of documentation do I need?

A cash charitable donation must be supported by written documentation showing the name of charitable organization, the date of the contribution, and the amount. For cash contributions under $250, the donor must have one of the following documentation types to claim a charitable contribution on the federal return:

  • Credit card statement
  • Canceled checks
  • Bank statement
  • Receipts from the charitable organization
  • Pledge cards
  • Pay stubs, Form W-2 or documentation furnished by an employer

For any single cash contribution over $250, donors must have a written acknowledgment from the recipient organization, including the name of organization, the amount of cash contributed, and a statement that no goods or services were provided by the organization in return for the contribution. If the donor received goods or services, the statement must include a description and estimate of the value of goods or services that were provided to the organization in return for the contribution. For property donations worth more than $5,000, the IRS has added additional reporting requirements, which may range from including an additional IRS tax form with the taxpayer’s tax return to also receiving an appraisal. The requirements may range depending on the property donation.

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