The Trump tax plan will be in full force in the year 2018 (almost full-force if you consider the individual mandate doesn’t go away until 2019).
There were some changes made, but overall if you are somewhat familiar with how the federal taxes work then it is still working in a very similar manner.
For instance, you can still write-off charitable contributions… but you may need to do it differently than you did before.
Charitable contributions in 2018
One of the biggest changes the new Trump tax plan brought about was the increase in the Standard Deduction from $12,700 for married couples filing jointly, up to $24,000 for a married couple filing jointly .
Just so we’re all on the same page, the Standard Deduction is the dollar amount you can reduce your income on which you’re taxed. So if you and your spouse had combined income of $24,000 during the year AND had a $24,000 standard deduction, you would show $0 taxable income. [Assuming you’re married filing jointly.]
Under the tax rules, since even before the Trump tax plan, you can itemize your deductions if they are greater than the standard deduction. When the standard deduction was lower at $12,700 it was much easier for your itemized deductions to exceed the standard deduction.
Charitable contributions were one of the write-offs that people would itemize.
But under the new rules less people will be itemizing their deductions because it is now less likely that their itemized list would exceed the standard deduction of $24,000.
So if the standard deduction is larger than what you can itemize, the smart thing to do is take the larger deduction and pay less in taxes.
Example: If you make charitable contributions each year of $20,000 then this will always be below the standard deduction of $24,000. You would simply take the standard deduction on your taxes to minimize what you owed the IRS [assuming you had no other itemized deductions].
One strategy to help write-off your charitable contributions is to make them every other year. So instead of making $20,000 each year, you could choose to make a charitable contribution of $40,000 every other year.
Since $40,000 exceeds the standard deduction of $24,000 you would want to itemize your deductions that year to get a better write-off and help lower your taxable income.
Sometimes little changes in the law require us to make little changes in how we help charities. Obviously if your charities of choice are dependent on your contributions each year you may not want to do this strategy since it requires skipping every other year.
Otherwise, you may want to consider it.