Guide to Charitable Deductions Under New Tax Laws
There are so many great reasons to give to charity. Being passionate about a cause motivates many people to give. However, the fact that you can get charitable deductions has always helped a bit. You get to benefit on your taxes when you give to others, provided you follow certain rules in your giving.
However, the tax laws have changed. As a result, fewer people are itemizing their deductions. If you don’t itemize, then you don’t take your charitable deductions into account at all on your taxes. Should you still keep giving to charity? If you do, can you benefit on your taxes at all now? Find the answers below.
Why Do You Give to Charity?
Before we get into the nitty-gritty of how the new tax laws affect charitable deductions, let’s take a moment to consider why we give to charity in the first place. If you’ve gotten so wrapped up in the tax benefits, then you’re really missing the point.
Of course, yes, those tax benefits are nice. However, they’re the icing on the cake. If I’m having trouble deciding between two different places to give my money, then I might choose the one that has non-profit status and therefore allows me to take charitable deductions. However, if I am passionate about a particular cause, I’ll give to it whether I get a tax break from it or not.
Common Reasons People Give to Charity
So, first things first, consider your priorities. People give to charity for all different types of reasons. Common reasons people cite include to:
- Gain a sense of empowerment over sometimes seemingly-hopeless issues
- Give back to an organization that has helped them in times of need
- Help after a particular story moves them
- Participate in a community as part of their spiritual beliefs
- Provide help to people who need it because it’s the compassionate thing to do; a sense of duty
- Reduce guilt over a particular situation
- Support a cause the individual really believes in
- Support something a loved one says is important to them
- Teach children how to help others
Additionally, it feels good to give to others when you have the resources to do so. Undoubtedly, sometimes egoism is also at play; people give because they want others to see them giving.
It’s helpful to know what motivates you. Think about it and put that at the forefront of your mind when it comes to donating in the year to come.
Tax Reform Has Increased Standard Deduction
When it comes to charitable donations, people give in part because they get back. Specifically, they get a break on their taxes. However, you have to take itemized deductions in order to benefit from charitable deductions.
Changes in tax law radically altered the standard deduction. The new reforms started with 2018 tax filing and will continue through 2025. With the new rules, the standard deduction has increased dramatically. Individuals can take a $12,000 standard deduction. Couples who are married and filing jointly can deduct $24,000.
One report indicates that this has had a dramatic impact on the number of people bothering to take itemized deductions. Tax Foundation reports that among people earning between $10,000 and $200,000, standard deductions will decrease by between 63% and 70%. In other words, the majority of taxpayers will not itemize deductions, at least not for the next eight years.
Two Aspects of Tax Reform Encourage Charitable Deductions
There’s something really important to remember here. You do not have to take the standard deduction. You can still opt to itemize deductions. Although many people are opting to take the standard deduction, you can still review both options and choose the one that makes the most sense for you.
If you are passionate about charitable giving, then you might find that it’s actually best to continue to take the standard deductions. If you do, then you can still get the charitable deductions that you’re used to from the past. In fact, two huge changes within the new tax reform rules actually provide an incentive to continue donating to charity.
You Can Now Deduct More for Charitable Giving
First off, you can actually now deduct more for charitable donations than you could in the past. Prior to the tax reform, you could donate in cash up to 50% of your adjusted gross income. If you donated more than that in cash contributions, then it didn’t count toward your deduction.
However, the new rules bump that up another 10%. So, you can now deduct up to 60% of your adjusted gross income if you give that in cash contributions. Be sure to check the exact rules as they apply to your situation. There are certain regulations and limitations on this new part of the law.
You Can Now Itemize More Deductions
If you do decide to itemize your deductions, you’re not going to be capped in the way that you were in the past. Prior to the tax reform, there was a limit on your total itemized deductions. However, until the end of 2025, that limit has been lifted. You can take as much as you’re legally allowed as far as deductions go.
As for charitable giving, this means that whatever you give, you can deduct. In the past, you might have realized that you were capped out and chosen not to give anything more to charity until the next year. However, if you have the funds, you can donate them, because you’re now allowed to count them all towards your itemized deductions.
Should You Give to Charity Despite Changes in Tax Law?
If tax deductions are a primary motivator for giving to charity, then you have to weigh the pros and cons of donating under the new law. People who can give a lot then take itemized deductions will see the tax benefits that they’re seeking.
If you’re like most people, though, the tax benefits are only one reason that you give to charity. If you look at all of the other good reasons to give to others, then you might determine that it’s worth donating even if you do end up taking the standard tax deduction next year.