For many American families who prepare for year end tax planning, no discussion is complete without talking about charitable contributions. Many families make charitable contributions by tithing a percentage of their family income, giving cash to local charities, or they end up taking non-cash items from their household and donating them to a worthy charity. With the potential shake up in the tax law under a Trump regime, will you have your charitable contributions completely wiped out in 2017?
First things first. You don’t really need to worry about charitable contributions if you don’t itemize your deductions at all. Today, a single filer has a $6,300 standard deduction and a married couple has $12,600 for a standard deduction. In addition, you get to deduct you, your spouse, and your children as personal exemptions on your tax return. The suggested policy going forward would be to wipe out the personal exemptions and offer a larger standard deduction of $15,000 for a single person and $30,000 for a married couple.
With only 30% of Americans itemizing their deductions, the impact on any charitable contribution policy is going to revolve around those that have a higher income level. The chart below from the Wall Street Journal gives you a feel of the various income levels and where their current itemized deductions fall when they file their return.
With Trump’s proposal to cap itemized deductions at $100,000 for single filers and $200,000 for married filers, it is important to closely examine your schedule A which includes your state income taxes, real estate taxes, medical expenses that qualify to be deducted, mortgage interest, charitable contributions, and things such as unreimbursed employee expenses.
We don’t know where the final proposal will come to rest, but if you were going to consider a large charitable deduction, then this just might be the year to take advantage of doing it in 2016.