The charitable contribution deduction is normally an itemized deduction. The 2022 standard deduction for every filing status is significantly high and there are limits on some itemized deductions — e.g., the deduction for state and local taxes. As a result, many taxpayers can’t itemize. Here are several strategies that can help taxpayers get more tax mileage from their charitable contributions.
Timing Donations With a Donor-Advised Fund
With a donor-advised fund, you make contributions to the fund and instruct how you want your gifts to be disbursed. Contributions to a donor-advised fund are generally tax deductible in the year they are made. If desired, you can put those dollars to use over several years by supporting your favorite charities through your donor-advised fund. You itemize in years you make the contribution and benefit from the high standard deductions in the years you don’t contribute.
Timing Donations by Bunching
Taxpayers can itemize every second or third year and maximize their deductions, by bunching donations. If a married couple’s only non-charitable deduction is $10,000 of state tax, and they donate $15,000 a year, they will take the standard deduction of $25,900 a year for two years, a total of $51,800. If they bunch the contributions into one year and donate $30,000, they take the standard deduction year one and itemize ($30,000 and $10,000) year two, for a total two-year deduction of $65,900. By bunching, they have increased their deduction by $14,100 ($65,900-$51,800).
Donating Appreciated Securities
Many donor-advised funds and public charities accept contributions of publicly traded securities. A donation of highly appreciated securities held more than one year provides a tax deduction for the securities’ fair market value while avoiding the capital gains tax that would be due if the securities were sold.
Making Qualified Charitable Distributions
A qualified charitable distribution (QCD), also known as an IRA charitable rollover, allows you to donate to qualified charities directly from your individual retirement account (IRA). While there is no tax deduction allowed for the donated assets, they don’t count as income either. What’s more, a QCD can help satisfy your annual required minimum distribution (RMD).
To make a QCD you must be at least 70½ years of age. Gifts must be made directly from your traditional or Roth IRA to a public charity. Up to $100,000 may be transferred annually per spouse.
Charge Year-end Donations to a Credit Card
Donations charged to a credit card before the end of the year count for that year. This is true even if the credit card bill isn’t paid until the next year. In other words, credit card contributions are deductible in the year the charge is entered into the system.
Each individual’s tax situation is different. Please consult with a tax professional at Urbach & Avraham, CPAs to help you analyze the impact on your personal situation.