As we approach the close of the year, many people start considering making charitable donations, and experts suggest that there are ways to enhance your tax benefits in the process.
According to a report from Indiana University’s Lilly Family School of Philanthropy released in June, charitable giving in the U.S. reached $557.16 billion in 2023, marking a 2% increase over 2022. Additionally, GivingTuesday Data Commons estimated that donations on Giving Tuesday 2023 amounted to $3.1 billion.
“This time of year, charitable contributions really come into focus, and many people want to ensure they make the most impact,” says Paula Nangle, a certified financial planner and president of Marshall Financial Group based in Doylestown, Pennsylvania.
So, what should you keep in mind about tax benefits before you make those donations? Here’s the scoop, straight from financial advisors.
### How the Charitable Deduction Works
When it comes to filing taxes, you can choose to take the standard deduction or go with your total itemized deductions, picking whichever offers the bigger savings. When itemizing, you can claim deductions for charitable donations, medical expenses, and state and local taxes (SALT), among others.
With the 2017 Tax Cuts and Jobs Act signed by President Donald Trump, the standard deduction nearly doubled, and the SALT deduction became capped at $10,000 through 2025. These changes have made itemizing less common.
For the year 2024, the standard deduction will be $14,600 for single filers and $29,200 for couples filing jointly. The IRS data shows that around 90% of filers opted for the standard deduction in 2021. Yet, there are still some tax strategies out there that can help you exceed or bypass the standard deduction hurdle, experts note.
### Qualified Charitable Distributions: A Smart Move
If you’ve hit the age of 70½ and have funds in a pretax individual retirement account, a qualified charitable distribution (QCD) could be a savvy move, according to Sandi Weaver, a CFP and CPA at Weaver Financial in Mission, Kansas.
QCDs involve directly transferring money from an IRA to a qualified nonprofit. For 2024, individuals can transfer up to $105,000, an increase from $100,000 in previous years.
While there’s no charitable deduction from these transfers, they also won’t raise your adjusted gross income (AGI), Weaver explains. Maintaining a lower AGI can be beneficial, as it might prevent an increase in income-related monthly adjustment amounts (IRMAA), impacting Medicare Part B and Part D premiums.
Moreover, you can meet your annual required minimum distributions (RMDs) with a QCD, as per the IRS guidelines. Since 2023, most retirees need to start RMDs from pretax accounts at age 73.
Juan Ros, a CFP and partner at Forum Financial Management in Thousand Oaks, California, puts it succinctly: “The QCD is a no-brainer.”
### Bunching Donations: A Strategy to Consider
If your itemized deductions don’t surpass the standard deduction, consider “bunching” your donations for multiple years into one, suggests Nangle.
One effective method of bunching involves using a donor-advised fund, which is an investment account you can use for future nonprofit gifts. This approach allows donors to receive an upfront deduction on transferred assets.
Using appreciated stock for funding a donor-advised fund can be particularly beneficial, Juan Ros points out. This way, donors receive a tax break and avoid any capital gains taxes altogether.
With these strategies, you can maximize your contributions and their tax benefits, making your charitable endeavors more fruitful for both you and those you aim to help.
