As we work toward the end of the year it's a great time to consider year end planning around gifting.
Do you typically gift any money to charity?
We generally give to charities because we have a desire to help others. These funds are used by various nonprofits to support many great programs for those in need. We also realize that clients want to receive the best tax benefits possible for the gifts they make. With the 2018 tax law changes enacted, there has been a nationwide reduction in giving due to a decrease in the tax benefit of these gifts for many donors.
So how can you still make donations to those organizations and get the best tax benefits as well?
Due to a decrease in deductions available and the new Standard deduction amounts, many individuals and couples don’t have enough deductions to get above the standard deduction limits. For 2019, the standard deduction for a single person is $12,200 and the standard deduction for a married couple is $24,400.
How can you best benefit with these new standard deduction amounts? Let's say you want to make a $10,000 charitable gift each year for two years, but your other deductions don't give you enough to get above the $24,200 married standard deduction amount. One way to increase your benefit would be to group your gifts. Instead of making a 2019 donation, give your gift in early 2020 instead and make another similar gift at the end of 2020. This way the charity still gets the same donation, but you get a better tax benefit. See the below scenarios.
If you have reached age 70 ½, another way to give to charity is through Qualified Charitable Deductions (QCD) from your IRA. Normally at age 70 ½, all individuals must begin making required minimum distributions (RMD) annually from their IRA accounts. Using the benefit of QCD, you can make a direct donation to charity from your IRA account which also counts toward your required minimum distribution. This allows you to use untaxed money to go to charity and helps reduce the amount of your RMD - especially helpful if you do not need the full amount.
These are two ways you might better benefit from donations made to charity. Both of these strategies require you to follow specific steps to ensure you are able to claim the benefit you desire. We recommend working with your financial advisor to review these and other strategies that may benefit you.