Question

The Tax Cuts & Jobs Act enhanced the deduction for charitable contributions by raising the limit that can be contributed in any one year. The limit is now 60% of adjusted gross income (AGI), up from 50%. Assume your client still has a charitable deduction limitation due to their AGI. The client might lose the charitable deduction because of achieving this limitation.

• Recommend at least two tax planning strategies to avoid losing the deductions. Provide support for your response

Answer 1

Strategy 1:-

The charitable deduction was retained amid the tax reforms, but middle-class taxpayers may have far less incentive to donate to charity than they once did due to the greater standard deduction. A pair of adjustments have been made. One, taxpayers can now deduct charitable donations equal to 60% of their incomes; previously, the limit was 50%. Two, charitable contributions made to a university or college that give the donor the right to buy sports tickets are no longer deductible.

Strategy 2:-

The TCJA enhanced the deduction for charitable contributions by raising the limit that can be contributed in any one year. The limit is now 60% of adjusted gross income, up from 50%.

For the 2015 tax year, 82% of taxpayers who itemized claimed a charitable contribution. So, if you can still itemize, you can continue to deduct charitable contributions, but doing so only reduces your taxes if all your itemized deductions exceed the newly raised standard deduction.

Some taxpayers who have lost the value of some deductions (such as the state and local tax deduction) may make up the difference by contributing more to their favorite charity so they can continue to claim itemized deductions after tax reform.

Conclusion

For taxpayers who used to claim itemized deductions, it may no longer make sense after tax reform if the new higher standard deduction exceeds what their itemized deductions would have been.

For example, suppose in 2017 a taxpayer who files as Single had itemized deductions of $9,200, or $2,850 more than the standard deduction of $6,350. Suppose in 2018 this taxpayer again has $9,200 in expenses that would have been deductible in 2017. With a new, higher standard deduction of $12,000, the taxpayer can deduct $2,800 more using the standard deduction than by itemizing

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