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Maximizing Your Charitable Giving for Tax Benefits

By: Jen Danko We all wish we could contribute more to those causes and communities we care about most. By thoughtfully strategizing your charitable giving, you have the opportunity to maximize your tax deductions and positively impact the causes closest to your heart. There are various strategies and considerations when thinking about exploring charitable giving for tax purposes, such as itemizing deductions, donating assets, qualified charitable donations (QCDs), and many more. By exploring the frequently asked questions about charitable giving tax strategies noted below, you not only support a meaningful cause but can also provide valuable tax benefits.

Itemizing Deductions: When Does it Make Sense?

In general, charitable contributions can help minimize your tax bill only if you itemize your deductions instead of taking the standard deduction allotted to you by the IRS. By itemizing, you are claiming deductions for expenditures such as real estate taxes and state/local income taxes (capped at $10,000), mortgage interest, medical expenses, and of course charitable donations. To itemize, a taxpayer’s total expenditures in these categories need to surpass the standard deduction –

For 2023, the standard deductions are $13,850 for single filers and $27,700 for joint filers.
If you are at least 65 years old, you can claim an additional 2023 standard deduction of $1,850.
If your spouse is also over 65, the additional deduction amount is doubled.

Once your expenditures exceed these amounts, then itemizing allows you to deduct the full value of your eligible charitable contributions, potentially resulting in significant tax savings. Be certain to keep detailed records of your donations, including receipts, acknowledgment letters, and documentation of non-cash contributions. If you are interested in donating an asset such as a vehicle, boat, aircraft or real estate, stricter substantiation requirements need to be met so ensure you are discussing these donations with your advisor before completing the gift.

Is Your Donation Tax-Deductible? Breaking Down Eligible Charitable Organizations.

Ensure that the organizations you donate to are eligible for tax deductions. Qualified organizations include:

Registered nonprofits
Religious organizations
Educational institutions

Donations to individuals (including GoFundMe campaigns), political campaigns, and foreign organizations generally do not qualify for deductions.

Looking to Avoid Capital Gains Taxes? Consider Donating Appreciated Assets.

Donating valuable assets such as shares, securities, or real estate can be a tax-efficient approach to support charitable causes. By donating appreciated assets directly to a qualified organization, you may avoid capital gains taxes that would otherwise be due if you sold the assets. You can generally deduct the fair market value of the assets at the time of donation, subject to certain limitations.

What is a Donor-Advised Fund?

Establishing a donor-advised fund (DAF) can be a strategic tool for maximizing your charitable giving. A DAF allows you to make a charitable contribution into a specialized account, providing you with an immediate tax deduction. Once the contribution is made, those funds are marked for both current and future charitable giving. Grants can be given from this fund at any point in the future to any qualified charity of your choosing. By contributing appreciated assets to a DAF, you can potentially avoid capital gains taxes while supporting your chosen causes both now and in the future.

When is the Best Time to Make a Tax-Deductible Donation?

Consider the timing of your charitable donations to optimize tax benefits. By “bunching” donations in a particular tax year, you may be able to exceed the threshold for itemizing deductions, maximizing your tax savings. For example, you could make larger contributions to organizations every other year, alternating with the standard deduction in off years.

What are Qualified Charitable Distributions (QCDs)?

Individuals who are 70 and a half years old or above and possess an IRA have the ability to transfer funds directly to a certified charity. These transfers, known as qualified charitable distributions (QCDs), count towards your required minimum distribution (RMD) but are not included in your taxable income. QCDs can be an effective way to fulfill your charitable intent while reducing your taxable income.

Do You Need Help Maximizing Your Charitable Tax Benefits? Maner Costerisan Can Help.

Maximizing your charitable giving for tax benefits requires careful planning and knowledge of available strategies. With proper planning, you can optimize your tax savings while making a positive impact on the causes you care about most. The tax planning experts at Maner Costerisan can help ensure compliance with tax regulations and make the most of your charitable contributions. Remember, giving back is not just about tax benefits but about making a difference in the world. Contact Jen Danko, CPA, Principal, with any questions at jdanko@manercpa.com or by calling 517-323-7500.