Despite what you may have heard from friends or family, you can still claim generous tax benefits for charitable contributions. Here are three prime examples of charitable tax breaks ripe for the picking if you know where to look:
- Qualified charitable distributions. If you’re age 70½ or older, you can transfer up to $100,000 (or a total of $200,000 for joint filers) directly from your IRA to a qualified charitable organization without paying any tax. Because distributions done this way are not subject to federal tax, it's like contributing with pre-tax dollars. Plus your contribution counts as a required minimum distribution for tax purposes.
- Appreciated securities. Donate appreciated property (like securities) to a qualified charity and you can deduct the current fair market value (FMV) of the property if you’ve owned them longer than a year. For example, if you acquired stock three years ago for $7,500 and it’s now worth $10,000, you can donate it and deduct the entire $10,000 FMV if you itemize your deductions. There’s no capital gains tax on the $2,500 appreciation in value — ever! This is a great strategy if you are close to or over the itemized deduction threshold in a year.
- Bunching donations. Under the recent tax legislation, the standard deduction was essentially doubled for 2018-2025, while certain itemized deductions were reduced or eliminated. As a result, it now makes sense to “bunch” large gifts of property, like securities (see #2), in a tax year in with which you expect to itemize. Conversely, if you don’t anticipate itemizing in the current tax year, you may postpone donations into the next year. The idea is to get the most tax deductions possible over a multiyear period.
With each of these ideas, it is essential to follow the rules when donating. If not, your good intentions may not be deemed a qualified donation for tax purposes. Ask for help if you'd like to review your situation.