Love it or hate it (or just scratch your head at it), the new tax law has changed the way that a lot of us are filing our taxes this spring. The standard deduction has increased dramatically, which means that many people who itemized deductions in the past will no longer have the incentive to do so. If they don’t itemize, they won’t get a charitable deduction for any gifts that they made from a checking or savings account in 2018.
People shouldn’t have to pay taxes on money they give to charity. This sensible, longstanding policy of the IRS incentivizes generosity. Of course, most of our members don’t give for the tax break. They give to express gratitude for God’s good gifts, and because they value our Christian community. The charitable tax deduction is just a cherry on top.
But now, it’s a cherry that some of us won’t get… unless we adapt our giving strategy to the new tax rules.
Imagine Betty. There’s no such person, but we all know someone like her. She sits in the fifth row of the sanctuary on the right hand side, makes a mean potato salad, and has been a member of your church for 30+ years. She’s living on income from a pension, Social Security, and her IRA. She’s always been an itemizer, so she knows that when she writes her check for the offering plate each week, that portion of her income will not be taxed.
This year she’ll tally up all her deductible receipts, including her annual giving statement from the church, and see that the combined total is less than the new $24,000 standard deduction for surviving spouses. Okay, she’ll say to herself, I’ll take it! She might feel a bit strange knowing that she’s taken the exact same deduction as someone who didn’t make any charitable contributions, but she’ll remind herself that’s not why she gives.
It’s not a bad outcome, but it's not optimal. If Betty had given pre-tax money to the church instead of writing a check, she could have lowered her taxable income, still taken the standard deduction, and come out ahead.
Here’s an alternative scenario for Betty: she uses an IRA rollover to give away pre-tax money. The way this works is that she calls the phone number on her statements and directs that her church pledge should be made directly (rolled over) from her IRA. The custodian cuts a check and mails it to the church. Betty pays no income tax on the gift. It satisfies part or all of her required minimum distribution and-- best of all-- her desire to support the church’s ministry.
There are other ways to give pre-tax dollars, like giving appreciated stock, or setting up a Donor Advised Fund. But making a gift from a traditional IRA can be the simplest, especially for anyone like Betty who is over 70 ½ years old and already taking distributions. In fact, any individual may count up to $100,000 per year of charitable IRA rollover gifts towards his or her required minimum distribution.
So, if you see beloved elders of your congregation writing checks every week, share this information with them. It might help them continue to get that charitable deduction, the cherry on top of their generosity.
by Julia Frisbie, Associate Director, Northwest United Methodist Foundation