March 01, 2018
The new tax reform legislation will take effect for the 2018 tax year. If members of your church have questions about charitable giving and the new tax rules, your Missouri United Methodist Foundation is here to help. Below are a few ideas for making tax-wise charitable gifts under the new rules:
In the next tax year (2018), a married couple claims the maximum property and state income tax deduction of $10,000. This couple also paid $7,000 in mortgage interest. They will need more than $7,000 of additional deductions to exceed the new standard deduction of $24,000.
Their annual donations to their church and other charities total $4,000. In December of 2018 they decide to pre-pay their 2019 church pledge of $3,600. This allows them to itemize deductions in 2018 for a total deduction of $24,600. In 2019, they will use the standard deduction.
By “bunching” charitable gifts every other year, the couple can take better advantage of their deductions.
Donor Advised Funds
In keeping with the idea of “bunching” charitable gifts, the Donor Advised Fund is a great tool for even more significant bunching over longer periods of time. A Donor Advised Fund (DAF) can be created at the Missouri United Methodist Foundation with an initial gift of at least $10,000. Gifts of any size can be added to the DAF at any time. When a gift is made to the DAF, it is a completed charitable gift.
Consider that same couple opens a DAF and makes a gift to the fund of highly appreciated stock worth $50,000. The gift is deductible up to 30% of the couple’s Adjusted Gross Income (AGI) with an additional five years to carry forward any unused deduction. In subsequent years the couple can do their primary charitable giving with distributions from the DAF to their church and other favorite charities.
The new tax law makes no changes to the Capital Gains tax. Therefore, all taxpayers can benefit from the capital gains tax savings of a charitable gift of appreciated stock. (The Foundation processes stock gifts for all Missouri UM churches and organizations.) If a gift of stock also helps a donor exceed the standard deduction, then the income tax savings would accrue as described above.
IRA Rollover Gift
If you are over age 70 ½ and have a traditional IRA, you can direct your IRA administrator to make gifts to charity directly out of your IRA. Lots of folks have found this to be a great way to support their church. The distribution is not income to the donor and there is no tax deduction, but it counts toward the donor’s Required Minimum Distribution. The new tax law does not change these rules, but this option may be even more attractive if you do not need a deduction.
If you are looking for more in-depth clergy tax information and church office best practices, please join us in Kansas City at our March 12th Clergy Tax Update & Financial Practices for Churches Seminar. All clergy, laity and church business office staff are welcome. Register at https://mumf.org/2018-clergy-tax.
For additional information on the new tax rules and other charitable giving ideas, download the 2018 Options and Opportunities guide at www.mumf.org or call our office at 800-332-8238.
The purpose of this article is to provide general information and is not intended as legal, accounting or other professional advice. For assistance with planning charitable gifts with tax and other financial implications, the services of appropriate advisors should be obtained. Tax deductions vary based on a variety of factors that may change and that may pertain to your unique situation.