Many people make their charitable donations near the end of the year. If you give to charity, here are some tips to do it the tax-smart way. Because unless you’re itemizing deductions on your tax return, none of your giving is tax deductible. And even if you are itemizing, only the amounts above the standard deduction we all receive anyway are truly deductible. If you could get a bigger tax break for being charitable, you could potentially have the means to make a greater donation. So what can you do?
- Consider bunching multiple years of charitable donations into a single year as I mentioned in this article earlier this year.
- Consider making these bunched donations into a Donor-Advised Fund that allows you to invest the funds as you disburse donations over time.
- If are planning to bunch donations, think about waiting until after 2025 when your tax rate may be higher (and standard deductions will be cut in half) when your donation could receive a higher tax deduction (assuming current tax changes sunset as planned).
- Accelerate tax deductions—at least in certain years—if necessary to be able to itemize.
- If you are retired and making Required Minimum Distributions (RMDs), consider making a Qualified Charitable Deduction from your tax-deferred accounts to satisfy an RMD you’re forced to take but don’t need to spend. Funds must be distributed by the end of the year for this purpose and in some cases checks must be cashed by the charity in question.
- Consider donating appreciated securities in lieu of cash. Not only can it be tax deductible but you also eliminate the unrealized taxable gain in the process. (For investment management clients, identifying the best securities for this strategy is something I can take off your plate.)
- For large donors and bunchers, be aware of the income limits around the deductibility of charitable donations. If you give too much as a percentage of your Adjusted Gross Income, you may have to carryforward excess amounts.
There are other more complicated strategies; this is not an exhaustive list. The best thing to do, in fact, is to just reach out to me. Let’s design a customized giving strategy and integrate it into your overall financial plan.
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