That Donation You Make May Not Be Tax-Deductible

Unless you’ve completely turned off the news, you probably know that the tax code was significantly changed over the Holidays with the passage of the Tax Cuts and Jobs Act (TCJA).

There has been a lot of information out there on how some of the changes to the code will impact taxpayers differently depending on the state in which they reside. More on that at a later time, but for now, there is something in the code that will impact residents in all 50 states. If you give money to charity, or if you represent a charitable organization, then pay attention.

One of the by-products of the new code is that the number of taxpayers claiming itemized deductions will be reduced significantly. Currently, roughly 33% of taxpayers use itemized deductions on their returns. It is estimated that in 2018, that number will drop closer to 10%.

Standard Deduction vs Itemized Deductions:

Per the IRS, “When you file your tax return, you usually have a choice whether to itemize deductions or take the standard deduction. Before you choose, it’s a good idea to figure your deductions using both methods. Then choose the one that allows you to pay the lower amount of tax. The one that results in the higher deduction amount often gives you the most benefit.”

Typically, taxpayers in states with income taxes and large real estate taxes tend to use itemized deductions. With the passage of the TCJA, the deduction for State and Local Taxes (SALT) will now be limited to a $10,000 deduction.

For example, let’s take a look at Jane and Judy:

Jane lives in Houston, TX, and her property taxes are $12,000 a year, she will now be limited to deducting $10,000 if she itemizes for the purposes of SALT.

Judy lives in Los Angeles, CA, and her property taxes are also $12,000 a year. In addition, since Judy lives in California, she also pays $5,000 a year in state income taxes. Prior to the TCJA, Judy was able to deduct $17,000 if she took itemized deductions. Now, Judy will be limited to a $10,000 deduction.

So how does this impact charitable donations?

Here is the link to the IRS Website: https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions

In order for a taxpayer to deduct donations made to a qualified organization, a taxpayer must use itemized deductions.

If you find yourself still taking itemized deductions, then that charitable contribution you make may still be tax-deductible. However, if you find yourself switching to a standard deduction, that donation will no longer be tax-deductible.

If you are soliciting for donations, be careful, less people will be able to qualify for that deduction.

It is not all doom and gloom however. As part of the TCJA, most people should see their overall taxes go down which means they will have more money in their pocket. So if you are feeling charitable, you should have more money to give.

If you are a charitable person, consider planning ahead and talking to a qualified professional so that you can maximize benefits to both your charity as well as to yourself and your family.