By Jerry Love, Director of Planned Giving
By now most people have heard about the Tax Cuts and Jobs Act passed by congress in the latter days of 2017. However, there may still be some misinformation, or a lack of information, causing some confusion.
The Louisiana Baptist Foundation assists individuals with donations in support of Louisiana Baptist ministries, and we attempt to stay abreast of changes in the US tax code, particularly as it relates to charitable giving.
Here are some highlights that might help you in planning your gifts:
Business Tax Reform – Without going into the depths of corporate tax changes, the reduction of the corporate tax rate from 35% down to 21% already is adding to personal pocketbooks. Since January, several companies, including Walmart, announced an increase in base wages and other salaries. Other companies such as Apple and AT&T announced one-time bonuses for employees as a share of company tax savings. Additionally, a number of businesses announced they would be expanding their workforces with several reporting they would be returning overseas operations to U.S. soil. All these situations can be an encouragement to workers and allow them to give to ministry for the first time or increase the amount they have been giving.
Individual Reform – There are a number of changes that will decrease the tax burden of most people.
Changes in Tax Rates – Most rates for individuals and families have been adjusted favorably with the range of the bracket adjusted as well. There are some exceptions but a large number of people will pay a lower percentage based on the new rate structure. A number of internet sources (use “2018 Tax Brackets”) give a peek at the new numbers, including bankrate.com (search for ‘tax brackets’).
Charitable Deduction – The question most asked in our circles is “did the charitable deduction go away?” The easy answer is “No.”
Most deductions remain intact, including the charitable deduction, the mortgage interest deduction and the deduction for state and local taxes. However, the cap on mortgage interest is lowered from 1 million dollars of mortgage debt down to $750,000. Also, interest on second homes no longer is deductible. The other limitation on deductions for 2018 is a cap of $10,000 on state and local tax deductions. There are other tweaks to some deductible items, but deducting medical costs, tuition, and teacher spending on students have been retained.
IRA Charitable Rollover – The ability to make charitable gifts directly from an IRA is still available for those 70 and one-half years of age and older. This provision was enacted initially in 2006 and made permanent in 2015. The current changes do not affect this.
Increase of the Standard Deduction – This is the one change that will affect every person who has taxable income. The standard deduction will nearly double under the new tax law.
Individuals now may claim $12,000 as a deduction, with joint filers claiming $24,000, without itemizing deductions. This will mean that many people will not use their charitable deduction and other deductions mentioned above IN FAVOR OF THE NEW HIGHER STANDARD DEDUCTION.
Personal Exemption Eliminated – This $4,050 “per person” exemption within a household no longer exists. While this change likely will affect larger families, the benefits from changes to tax rates and the standard deduction likely will supersede the loss of the personal exemption for most.
For the Families – The Child Tax Credit will double from $1000 up to $2000. Also the tax-advantages of “529 Plans” (aka college savings or qualified tuition plans) have been expanded to include K-12 schools AND homeschooling expenses, helping families pay for education options other than public schools.
Quick Hits – Tax rates for capital gains remain the same at 15% and 20%; estate tax remains but with a higher exclusion (roughly the first 11 million dollars of a person’s estate is excluded from taxes); home equity loan interest, moving expenses, other miscellaneous items are no longer deductible; casualty/theft losses are limited.
Two Parting Items — The new provisions of the Tax Cuts and Jobs Act took effect January 1, 2018, but do not affect tax filings for 2017. Also, keep in mind that the changes will “sunset” or expire by 2025, unless Congress takes further action. It is important to stay informed in the coming years, and you can look to the Louisiana Baptist Foundation to keep you “in the know!”
There are other changes in the new tax law but have less impact on the population as a whole. As always, check with your tax advisor to see what provisions impact you and your personal situation.