As the end of the year approaches and people consider charitable giving it is important to be aware of any changes to the law that might affect these donations, said Mark Coffey, partner, senior financial advisor and director of planning at Summit Financial Strategies in Columbus and Seth Preisler, an estate planner at Bexley’s Chodosh & Chodosh.
A great deal of the changes to the charitable giving tax code have come as a result of a decline in the severity of the COVID-19 virus in the United States in the past year, they said. In previous years, the U.S. Department of the Treasury had made special rules that encouraged people to give to the less fortunate during the COVID-19 viral pandemic. However, as households continue to recover from the economic fallout stemming from the virus and associated lockdowns, some of these special rules have been removed. As a result, charitable donations made in past years might have different tax implications that can help determine how much one gives and to whom, Coffey and Preisler said.
According to Coffey, perhaps the most significant change from the past year comes in the form of a revision of a previously existing law dealing with tax burden deductions for charitable donations. In 2020 and 2021, the government provided an additional $300 deduction for charitable giving and $600 for couples filing jointly that could be taken without itemizing in order to encourage charitable giving in the midst of the COVID-19 pandemic.
“That option expired at the end of 2021,” he said.
This means anyone who wishes to take advantage of the tax deductions for charitable giving will be required to itemize their donations, while additional changes persist elsewhere, Coffey said.
Also, following changes to the tax code in 2017, the tax benefits of charitable giving have shifted considerably, he said.
“Ever since doubling in 2017, the new higher standard deduction amount for tax filers have resulted in most people no longer itemizing their charitable gifts.”
Coffey said this means that, unless someone is planning on donating a greater amount than their standard deduction, it makes financial sense to ignore itemizing one’s charitable donations in favor of taking the standard deduction.
He said this standard deduction has also increased in order to keep up with inflation, as the IRS’s website observes that for the 2023 tax year, the standard deduction will be $27,700 for couples filing jointly or $13,850 for single individuals or couples filing separately.
While some changes haven’t transpired yet, other financial experts believe that now is the time to begin making considerations for the future.
Preisler said, “In a few years, there’s the estate and gift tax exemption that is going to be halved” down from about $12 million where it currently sits to $6 million by the time 2026 comes around, with potential changes based on inflation. However, charitable donations left through one’s estate can be counted as a deduction against the potential tax impact upon one’s estate, he said. This suggests charitable donations through one’s estate can be a good way to cut down a tax bill while also doing philanthropic work for the community, Preisler said.
According to these experts, there is always a time and place for charitable giving, but before doing so, givers must develop an understanding of the laws that govern these charitable donations, as they have shifted a great deal since last year and will likely continue to change as time moves forward.
Matt Mahoney is a freelance journalist.