Finance: Tax Strategies for Charitable Giving

Q. Can I still get a tax break for donating to charity in 2018? I know the new tax law changed the rules.

A. You still get a tax break for charitable donations if you itemize deductions on your tax return. But the new tax law nearly doubled the standard deduction, meaning fewer people will itemize. You’ll come out ahead by itemizing if your charitable gifts plus other deductions total more than the standard deduction, which in 2018 is $12,000 for individuals or $24,000 for married couples filing jointly (plus an extra $1,600 for singles 65 or older or $2,600 for joint filers if both are 65 or older).

Making two or three years’ worth of charitable contributions at once could put you across the threshold to take the deduction. One good way to do that is by contributing to a donor-advised fund (available at brokerage firms and community foundations). You can take a tax break for the year you contribute, but you’ll have unlimited time to decide which charities you want to support.

You can also continue to get a tax break for donating shares of appreciated stock, mutual funds and real estate to charity. As long as you’ve held the investment for longer than a year, you’ll avoid capital-gains taxes on the profits.

And if you’re 70 1/2 or older, you can give up to $100,000 tax-free from a traditional IRA to charity each year, which counts toward your required minimum distribution but isn’t included in your adjusted gross income. The money must go directly to a charity, not to a donor-advised fund.

Q. I plan to pay my grandson’s college tuition by making payments directly to the university. Are these payments subject to limits or gift taxes?

A. Ordinarily, you’d need to file a gift-tax return if you were to give more than $15,000 in 2018 to any individual (couples may give up to $30,000), but any money you pay directly to the college for your grandson’s tuition isn’t subject to those limits. (Money that goes toward room and board is subject to the limits, however.)

You can also transfer money out of your estate by contributing up to five times the gift-tax limit to a 529 college-savings plan in one year (for a total of $75,000 in 2018) without suffering any gift-tax consequences. (You won’t be able to give your grandson any more money for five years.) Distributions from a grandparent-owned 529, though, could reduce the amount of your grandson’s financial aid award.

Q. Are the money-management fees I pay for my IRA still tax-deductible under the new tax law?

A. Investment management fees are no longer tax-deductible under the new law. But there is still a tax-advantaged way to pay these expenses: You can take money from your IRA to pay the fees without incurring taxes or early-withdrawal penalties. This can be a good strategy for a traditional IRA, but it doesn’t provide any extra break for a Roth IRA.

Kimberly Lankford is a contributing editor to Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com. And for more on this and similar money topics, visit Kiplinger.com.

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