The season of giving is upon us! Did you know that approximately 1/3 of all charitable giving occurs in December each year? As you are considering your year-end donations, we wanted to provide you with tax strategies to optimize your tax benefits.
You may be uncertain if there are still tax advantages to charitable giving under the Tax Cuts and Jobs Act (TCJA). The good news is that your donations are still deductible! However, many taxpayers will not claim the charitable deduction because with the increased standard deductions they will not itemize on their tax returns. What should you do if your charitable contributions don’t get you above the standard deduction? We are so glad you asked!
Bunching or lumping donations is a tax strategy that involves giving annual donations for multiple years in a single tax year. Under this strategy, you would not give in one year and take the standard deduction, and in the next year, you would give twice your typical annual amount to be able to claim the higher itemized deduction. For example, if you routinely give $15,000 annually, but now that amount together with your other itemized deductions isn’t enough to exceed the standard deduction of $24,000 for married couples filing jointly, you could consider holding your 2019 end of year donation until January 2020 and then making your annual contribution in December 2020 as normal. By doing this you would take the standard deduction of $24,000 in 2019 and then be able to deduct $30,000 for charitable giving in 2020, along with any other itemized deductions. If you decide to implement this tax strategy, just make sure that your charitable giving doesn’t exceed 30% or 50% of your adjusted gross income (AGI), depending on the type of contribution and recipient.
RMD & QCDs
Are you 70 ½ or older? The IRS requires you to take required minimum distributions (RMDs) from your tax-deferred IRAs each year. If you are like many taxpayers, you will want to minimize the impact of RMDs because these distributions can push you into a higher tax bracket or reduce your eligibility for certain tax credits and deductions. Qualified charitable distributions (QCDs) are a great tax strategy to reduce the impact of RMDs and benefit the causes you champion. QCDs are a direct transfer of funds from your IRA to a qualified charity. Up to $100,000 donated through QCDs can be counted towards your RMD for the year, and these amounts are excluded from your taxable income. Amounts donated through QCDs are not deductible on your tax return as charitable contributions, but the QCDs’ tax benefits can make them an important tax planning strategy for qualified taxpayers. For additional QCD requirements, you should speak to your accountant and IRA administrator.
Do you have questions about these strategies or about charitable giving in general? Give our office a call, and we’ll be happy to explore the best strategies for your situation!
By Amanda McBride
- This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.