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Are You Truly Charitable?
Dec 16, 2016
What's your answer to this blog's title?
There's some buzz about how this is the year to make charitable donations because the future of charitable giving looks bleak. At first we wondered why this was...had there been some sort of catastrophe we weren't aware of; some new study that showed donating subtracted years from your life, or maybe a projection of a bad economic future that meant there'd be no extra money to donate.
Turns out the reason for the paranoia is--surprise--The Donald. One of Trump's proposals is to raise the standard deduction for taxpayers by a "huuuge" amount.
Currently, the standard deduction is $6300 for singles and $12600 for Married Filing Jointly (MFJ). In addition to that, everyone gets a personal exemption of $4050 for each person being claimed on their return. This means that single filers can currently subtract $10350 ($6300 + $4050) from their taxable income--in essence earning $10350 "tax-free". Likewise, a married couple with one child can make $24750 "tax-free" ($12600 + $4050x3).
"Thanks for the boooooooring tax lesson--what's that gotta do with whether I'm charitable or not?!?" you may ask.
Almost there. Folks also have a chance to "itemize deductions" on schedule A every year if those type of deductions (donations, mortgage interest, property tax, state taxes, unreimbursed employee expenses, etc.) exceed their standard deduction amount. For most of them, mortgage interest, property tax, and donations are the main items they claim on schedule A.
Most "regular working folks" who itemize claim well under $25K in itemized deductions since mortgage interest is usually their largest deduction and our current mortgage interest rates are currently so low (although the fed seems to want to change that).
"OK, I'm waiting for how this affects me" you fight to shout as you battle your ever-more-heavy eyelids.
Well, here's the cold water. Trump's proposal calls for an elimination of the personal exemptions ($4K per dependent) and instead, an increase in the standard deduction to $15K for singles and $30K for MFJ.
This. Is. Huuuuuge.
A result of the proposed change would be that single filers who don't itemize come out winners--exempting their first $15K of income from taxes instead of the old $10350. Likewise, families with four or less members would also see tax savings because of that same reason--with married couples without dependents seeing the best return since they would now get to exempt their first $30K of income from taxes instead of the old $20700.
For those who itemize: I don't know where you live, but once the standard deduction gets that high, you've got to live in a pretty nice house to even hope to itemize since your mortgage interest and property tax will have to be somewhere in the $20K's for you to have a chance at itemizing! With such a high standard deduction amount, there won't be too much itemizing going on since most folks won't have that much in those type of deductions.
What's stressing charitable organizations is that if the tax-savings incentive is removed, taxpayers who used to donate will now feel like, "Hey, I'm a good person, but I work very hard for my money, and if I can't save on my taxes, why should I give it to some charity that'll probably just spend over 60% on themselves anyway?!?"
***BTW, I THINK YOU KNOW THE ANSWER TO THIS BLOGS TITLE IF YOU CHUCKLED AND WHOLEHEARTEDLY AGREED WITH THAT LAST QUOTE!!***
Tax savings means more money in your pockets. More money in your pockets means a lot of things for different folks. Hopefully, there'll be many for whom it'll mean even more giving to their favorite charities.
Up until now, I've had a line telling clients, "Hey, you're getting to help the _____ in need AND you get to save on taxes...SWEEET!!"
Now it'll be, "You're helping the ______ in need AND you get to save your soul...SWEET!!"
Don't lose your charitable heart, America.
Category: Taxes
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