MoneyDo: Maximize Tax Benefits Of Your Charitable Donations
We can debate whether or not we should be playing Christmas music this time of year, but most of us agree: ‘tis the season for donations to our favorite charities. This week’s MoneyDo is “Consider how to maximize the tax benefits of your charitable donations.”
A few points to remember as you consider the maximum benefit:
- A taxpayer currently gets to use the larger of the standard deduction or the total of their itemized deductions to decrease adjusted gross income (The total of all the taxpayer’s taxable income sources).
- Currently the standard deduction for married couples is $24,400 and for those who file single is $12,200.
- Itemized deductions become favorable if they exceed the standard deduction
- Among other items, itemized deductions include state taxes paid and real estate taxes up to $10,000, medical expenses, mortgage interest and (of course) charitable deductions.
Recent changes to the Tax Code have made it harder to deduct donations to charity. With less than two months until the end of the year, we suggest you:
- Review year-to-date donations and determine if itemized deductions will exceed the standard deduction. If so, consider if it’d be beneficial to ‘double up’ and donate your 2020 contributions prior to the end of December. Doubling up would allow you to deduct two years’ worth of your donations in one year.
- When appropriate, consider using a Donor Advised Fund.
A Donor Advised Fund is a philanthropic vehicle established at a public charity.
- It allows donors to make a charitable contribution, receive an immediate tax benefit and then recommend grants from the fund over time.
- Using a Donor Advised Fund allows a taxpayer to “front load” several years of donations to a trust. By doing so, all donations become deductible in 2018.
- The taxpayer can then forward those donations to a desired charity in later years thus taking a deduction in 2019 for a donation made in 2020 or any future year.
- For those who are age 70 ½ and haven’t yet taken their RMD (required minimum distributions), you’re able to donate your RMD to charity through a process called a QCD (qualified charitable distribution).
A QCD allows a taxpayer to claim both the standard deduction and the charitable donation. If you’re interested in learning more about QCD, take a look at our blog post: https://blog.annexwealth.com/2018/03/23/moneydo-charitable-alphabet-soup-youre-taking-rmd-considering-charitable-contribution-learn-qcd/.