Five Ways to Maximize Your Benefits
Charitable giving offers individuals a meaningful way to support causes while also providing opportunities for tax savings. While the following is not a comprehensive list of all charitable tax planning opportunities, it does provide some very useful ideas.
1. Itemizing Deductions
Taxpayers can deduct donations to qualified charities if they itemize deductions on their tax return. In 2024, the standard deduction amounts to $13,850 for single filers and $27,700 for married couples filing jointly. The standard deductions amounts are slightly higher for those over 65 years of age. For those whose total deductions, including charitable contributions, exceed the standard deduction, itemizing can lead to significant tax savings.
It’s important to remember that only donations made to eligible organizations qualify for a deduction. Contributions to political campaigns or individuals are not deductible. Donors should retain receipts and other documentation for any contributions exceeding $250, as required by the IRS.
2. Donating Appreciated Assets
Instead of cash, donating appreciated assets like stocks or real estate offers dual tax benefits. First, the donor avoids paying capital gains taxes on the asset’s appreciation. Second, they receive a charitable deduction for the fair market value of the asset on the date of donation, provided they’ve owned the asset for more than one year.
This strategy is particularly effective for individuals with large gains in their investment portfolios, as it can minimize their overall tax liability while making a substantial charitable impact.
3. Transfers Directly from an IRA
If you are age 73 or older, you must take RMDs (required minimum distributions) from your individual retirement accounts. These distributions count as taxable income. You can transfer your RMD directly to a qualified charity and avoid the tax.
Even though RMDs don’t start until age 73, direct donations from your IRA are allowed beginning at age 70 ½. You can make a Qualified Charitable Distribution (QCD) up to a maximum amount of $105,000 in 2024 directly from your IRA to a qualified nonprofit organization. This strategy is especially beneficial for those who do not itemize deductions, as it provides a way to gain a tax benefit while supporting charitable organizations.
4. Bunching Contributions
With the increased standard deduction, many taxpayers may find it challenging to itemize each year. A solution to this is “bunching” contributions—concentrating several years’ worth of charitable donations into one year to exceed the standard deduction threshold. This strategy allows the taxpayer to itemize in the year of the donation and take the standard deduction in subsequent years.
A donor-advised fund (DAF) is a helpful tool for bunching. Donors can make a large, tax-deductible contribution to the DAF in one year. Then, they can recommend distributions from the funds to preferred charities over several years.
5. Corporate Matching Programs
Individuals who work for companies with charitable matching programs can double the impact of their donations without doubling their own financial outlay. Individuals should explore any employer-sponsored programs to maximize their contributions and potential tax benefits.
Conclusion
Charitable giving not only fosters social good but also provides opportunities for strategic tax planning. By leveraging itemized deductions, donating appreciated assets, utilizing QCDs, and implementing bunching strategies, individuals can enhance both their philanthropy and their tax efficiency.
Note: This material has been prepared for informational purposes only, and is not intended to provide and/or should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.The Hillmen Foundation is a 501c3 California nonprofit organization. All gifts are tax deductible as allowed. Tax ID #68-0168995.
