Charitable giving should be a win-win situation. The charity gets the funds it needs and the giver gets both emotional satisfaction and, in many cases, a tax break. But while anyone can give to charity, donors who hope to take advantage of tax incentives should do some strategic planning first. That’s the best way to make sure that both parties benefit from a generous gift.
The Tax Cuts and Jobs Act (TCJA) increases the standard deduction to $12,000 for single filers and $24,000 for married joint filers. The increased standard deduction, along with the suspension and limitation of certain itemized deductions under the new tax law, results in far fewer taxpayers who will be able to itemize their deductions. Thus, fewer taxpayers will get a tax benefit from charitable giving.
Bunching Charitable Contributions
Since charitable gifts are fully controllable, it may be advantageous to bunch a few years’ worth of your contributions into one tax year. You could make a substantial charitable contribution to a donor-advised fund every other year and make your regular contributions from the fund to the charities each year. Bunching the contributions, rather than contributing smaller amounts annually, may help you exceed the standard deduction hurdle, thereby receiving a more significant tax benefit for your charitable contribution.
Qualified Charitable Distributions
If you are taking required minimum distributions (RMDs) and making charitable contributions, there may be a strategic tax planning opportunity. An IRA owner who has attained age 70½ may direct the distribution of up to $100,000 per year from the IRA to one or more qualified charitable organizations. This distribution counts toward satisfying your RMD and will not be taxable to you. Instead of qualifying for a charitable income tax deduction, the distribution is entirely excluded from your income.
Consulting with a financial planner about charitable giving isn’t just about saving yourself money. It’s a way of maximizing the amount you can comfortably give, helping your charity of choice can do as much good as possible. If you’re interested in discussing how you can donate more and save more, contact Steve Gallant.