For Smaller Donations
Take advantage of the tax deduction available for non-itemizers.
Only about 10% of taxpayers itemize their deductions when filing their Federal tax return. As a result, most taxpayers couldn’t realize a tax benefit for charitable giving. But with the passage of the pandemic-related Cares Act, all taxpayers--even if they don’t itemize--can deduct up to $300 on their tax returns and married couples filing jointly can deduct up to $600. Note: donations of property or investment securities don’t qualify for the deduction, nor do donations to donor-advised funds.
For Mid-Size Donations
Use Qualified Charitable Distributions.
A Qualified Charitable Distribution, or QCD, from an IRA provides a mechanism for retirees to give to charity regardless of whether they itemize or claim the standard deduction. Under a QCD, which is available once you turn 70 ½, you simply instruct the IRA custodian to steer a portion of your IRA, up to $100,000, to the charity of your choice. The donated amount avoids income tax altogether. In addition, if you are age 72 or older and subject to Required Minimum Distributions, the QCD fulfills all or a portion of the annual Required Minimum Distributions.
For Large Donations
Donate highly appreciated investment assets from taxable accounts.
For taxpayers who have substantial non-IRA assets—taxable assets that would otherwise be subject to capital gains tax upon sale (i.e., stocks, stock ETFs, stock mutual funds)—gifting such assets to charity confers several tax benefits. First and foremost, the charity receives the full benefit of the amount gifted—it won’t owe tax—and you can deduct the charitable contribution on your tax return if you itemize your deductions. And if the assets have appreciated sharply since purchase, the charitable gift effectively washes out your own tax liability—you won’t have to pay capital gains tax. You can give the assets directly to the charity or use a donor-advised fund. While we have this in the ‘for large donations’ section, anyone could have highly appreciated securities. In such instances, charitable gifts make an ideal way to give to charity and receive a tax break.
As always, please consult your tax advisor with questions and to ensure your gifts are tax advantaged.