Donating to charity can be a very satisfying experience. The thought of sharing with those less fortunate than yourself, or contributing to a non-profit organization that champions a worthy cause, causes a lot of good feelings in yourself and has a positive impact on your community and the world. There is a possibility.
By using some of the strategies below, you can help your donations go further and ensure the goals you set for your donations are met.
“Double Stack” Donations
With the increased standard deduction as part of the Tax Cuts and Jobs Act of 2017, taxpayers are less likely to itemize deductions. While this has reduced taxation for some individuals, it also means that some who previously itemized will not be able to do so.
One strategy to consider is doubling up on donations. That is, in one year he makes two years’ worth of contributions to achieve itemized tax benefits. When it comes time to file your taxes, you can itemize your deductions. The next year, you don’t make a charitable donation to your charity of choice (probably warn the charity that it’s a plan to avoid confusion) and receive a standard tax credit. This pattern of itemizing one year and using the basic deduction in the next year may be repeated several times.
Eligible Charitable Distribution
The Qualified Charity Distribution (QCD) strategy is only for individuals who have reached the age of 70.5. The original purpose of QCD was to allow an individual who has a required minimum distribution amount (RMD) to meet that obligation with her QCD.
Changing the RMD age to 73 has made QCD even more valuable to smart tax planners and tax-conscious donors. This provision allows you to make distributions directly to charities from your IRA account. Normally, this kind of distribution is 100% taxable, but since it is donated directly to charity, there is no tax.
This is a great benefit for those with large IRA balances and large pending RMDs in the future as their Adjusted Gross Income (AGI) may decline. A QCD strategy is a win-win for you and your charity.
The Donor Advised Fund (DAF) strategy is ideal for those who own stocks, exchange-traded funds (ETFs), or mutual funds with large unrealized capital gains. If you have held a security for a long time, it is likely that the security has greatly appreciated in value.
A DAF is a specific type of account that is itself a charity. Highly rated shares and funds can be donated to his DAF account. Stocks are sold within the DAF for long-term capital gains by charities that pay no federal taxes. Your donation will be considered at the current value of the stock at the time of donation and is clearly a win-win for you and the charity.
You may choose to implement some or all of these strategies yourself, but in some cases you may want to understand how they all work and analyze what works best for your particular financial situation. It may make sense to work with a like-minded financial advisor who can. situation.