Traditionally, Americans have been quite generous with their charitable contributions. The IRS also rewards them by allowing tax deductions for such donations. Many people wonder how the new Tax Cuts and Jobs Act, signed into law in 2017, will change the way they can claim charitable contributions.
How charitable contributions benefit taxpayers
Americans are able to choose whether to take a standard deduction or itemize their deductions. The IRS allows Americans to claim charitable contributions as an itemized deduction, along with other kinds of deductions to lower their tax burden. If a taxpayer’s itemized deductions were greater than the standard deduction, they would choose that option.
Donating to charity not only made people feel good and benefit society but they also had financial incentive to do so. However, with TCJA there are several changes that may affect how Americans support charities.
How does TCJA affect charitable donations now?
The new tax law doesn’t curtail the tax benefits of charitable contributions, and in fact, the cash contribution limit increased. However, many other itemized deductions were eliminated or significantly reduced, making it less likely they will itemize in the future.
Many taxpayers will likely find it more financially sensible to take the new standard deduction rather than itemize. Some experts worry that without financial benefits, fewer people will donate to charities because it will no longer be beneficial to them to claim the deduction.
Making charitable deductions work with the new tax law
One way tax experts recommend making the charitable deductions work for taxpayers is to alternate years for itemizing versus standard deductions. In other words, taxpayers concentrate their charitable giving into one year, boosting their itemized deductions over the standard amount. The next year, they claim the standard deduction.