How Charitable Gift-Giving Can Save You Money
Updated on Mar 01 2019
The old adage “you get more than you give” takes on a literal meaning when it comes to reducing taxes through charitable giving. However, this year’s new tax law may change that for many. Learn ways to give to your favorite charities, organizations and nonprofits and get some return on your taxes.
The 2018 standard deduction has nearly doubled to $12,00 for single filers and $24,00 for those who are married and filing jointly. Many fear that because of this, the charitable deduction will be largely irrelevant and lead many to donate less because they can no longer deduct that giving from their taxes. In fact, charities are expecting a nearly 5 percent drop in donations, the first decrease in charitable giving in decades.
It’s not all bad news, though. There are still ways to give to your favorite charities and be rewarded for your giving.
3 Ways to Give to Charity and Reap Tax Benefits
Don’t fret; tax laws may have changed, but there are still ways to save when it comes to giving. Here are a few:
1. Bundle your giving.
To be able to itemize your taxes, you can shift as many deductible expenses as possible into one year. This may allow you to itemize and then take the standard deduction the next year. This means donate two to three years worth of giving in one year so instead of donating $5,000 to your favorite charity each year, you donate $10,000 every two years.
If you do not have the cash on hand to do this, you can set up a donor-advised fund. Usually these funds require a minimum of $5,000 and they allow you to make a charitable contribution, receive your deduction for the full donation, and then direct the money from the fund to charity over time.
2. Use Required Minimum Distributions
For taxpayers over the age of 70½, required minimum distributions (RMDs) from an individual retirement account can be funneled directly to a charity (up to $100,000 per year). These are called a qualified charitable distribution (QCD) and while you can not write off your gift, you won’t owe income taxes on the withdrawal. The National Association of Enrolled Agents notes that using a QCD can reduce your taxable income by the amount donated, up to 50 percent of your adjusted gross income (AGI).
3. Consider a non-cash donation
Historically, cash has been the best way to donate to a charity. Because of recent tax changes, it may be wise to donate appreciated stock instead of cash. You will avoid the capital gains tax on investments by donating stock or other assets, like artwork or antiques that have appreciated over time. Additionally, if you give the stock, instead of sell it, you may be able to deduct the full market value. If you don’t want to sell the stock you can donate the shares and then use the cash you would have donated to buy more shares.
Be Informed About Charitable Gift-Giving and Taxes
How do you ensure you are giving wisely? Connect with a fiduciary financial advisor to understand your options and make sure you are investing and giving while maximizing your tax deductions.
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