“Don’t give up... you’ve got a reason to live; Can’t forget... we only get what we give."
—from “You Get What You Give,” as performed by The New Radicals
In the aftermath of Hurricane Michael, dozens of volunteer contractors, laborers and concerned citizens converge on affected areas in and around Panama City each day. They donate money and supplies, chainsaw trees and pull limbs from homes, haul away debris and carry water and gas to grateful residents.
Many of us like to help others when we can. That is why one change in the new tax law may deserve some scrutiny. The new $24,000 standard deduction (for married filing jointly taxpayers) might cause some taxpayers to be less charitable going forward.
Let’s say you traditionally itemize and you claim $10,000 in home mortgage interest and $5,000 in medical expenses. And let’s also presume that you gave $5,000 to your favorite charities. That’s a total of $20,000 in itemized deductions. As of this year, you’re better off taking the standard $24,000 deduction and no longer itemizing at all. And this would be true whether you gave $5,000 to charities or not. Speaking purely from a taxation perspective, we may see fewer Americans giving to charitable causes, as more taxpayers will simply take the standard deduction. Call it an unintended consequence of the new tax laws.
Say you’re in a 24 percent tax bracket, are filing jointly and your combined income is between $165,000 and $315,000. And let’s just say you had a combined $15,000 in itemized deductions. Your taxable income will not be affected by your charitable contributions unless you donate over $9,000.
Admittedly, tax planning and preparation can be trickier for higher net worth taxpayers and we suggest that readers should always rely on their tax professional for personal advice. So while there is some fear that the average American may cut back on charitable contributions, many will still give generously to church coffers and to other charitable causes, even without the tax break. Americans are big-hearted in this regard. But many might be more inclined to give if their taxable income was also lowered by virtue of their charitable contributions.
It makes sense for our laws to reward American taxpayers for their altruism. These charitable contributions make for better, safer communities; they support causes that relieve suffering and promote high ideals; they assist churches and schools and other organizations which enhance the quality of life for all of us. Thus, if we can create tax laws that dovetail with the generous spirit.
Margaret R. McDowell, ChFC®, AIF®, author of the syndicated economic column “Arbor Outlook,” is the founder of Arbor Wealth Management, LLC, (850.608.6121 – www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin.