3rd Quarter 2019

4 Tax Strategies to Maximize Charitable Giving

After the new tax law nearly doubled the standard deduction last year, fewer people are now itemizing — and if you don’t itemize, you can’t deduct charitable contributions. But a few smart strategies can still help you get some tax benefits for your charitable gifts while helping to support the causes you care about, too.

Bunching your contributions. Instead of giving a small amount to charity every year, making larger contributions every few years could put you over the threshold to itemize deductions. In 2019, the standard deduction is $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples filing jointly. You can choose to itemize in years when your charitable contributions plus tax-deductible mortgage interest, state and local taxes (up to $10,000) and other itemized deductions add up to more than the standard deduction. For more information about itemized deductions, read the Instructions for Schedule A at www.irs.gov.

Consider a donor-advised fund, available at many brokerage firms and community foundations. You can take a tax break in the year you contribute, but you’ll have unlimited time to decide which charities to support. This giving option can be particularly helpful if you’re bunching charitable contributions. Money in the donor-advised fund is usually invested in a pool of mutual funds, until you make grants to the charities you choose.

Give appreciated stock. If you own stock that isn’t in a retirement plan and it has increased in value over time, you typically owe capital-gains taxes when you sell it. But if you donate the stock to charity instead, you’ll avoid the capital-gains tax bill on the profits and can still deduct the current value of the stock as a charitable contribution if you itemize (as long as you’ve held the investment for longer than a year).

Give away your RMD. You must take required minimum distributions from your traditional IRAs after age 70½, and the withdrawals are generally taxable. But you can avoid this tax bill on the RMD by giving the money directly to charity instead. People over age 70½ can give up to $100,000 each year tax-free from a traditional IRA to charity, which counts toward their RMD but isn’t included in their adjusted gross income. You can’t double dip and deduct this money as a charitable contribution, but the strategy provides a tax benefit whether or not you itemize. For the money to be excluded from adjusted gross income, you must transfer it directly from the IRA to charity without withdrawing it first. Ask your IRA administrator about the procedure.

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