The fall season brings cooler temperatures and vivid outdoor colors, but it also brings thoughts that the year is almost over. Therefore, it is a great time to consider your tax situation. If you are predisposed to be charitable, there are a couple of strategies you can take that will maximize your contributions and minimize your taxes, but like most things this requires some knowledge and planning to be effective.The incre

ase in the standard deduction that began in 2018 has continued to significantly reduce the number of taxpayers who itemize their deductions. As of 2024, the standard deduction remains high ($29,200 for joint filers), while state and local taxes (SALT) are still capped at a maximum of $10,000 for those married filing jointly. This makes it challenging for many taxpayers to qualify for itemizing if their primary deductions come from SALT. However, if you previously itemized due to substantial charitable contributions and large SALT deductions, you can still utilize strategies like grouping or "bunching" your charitable donations to optimize your tax benefits.

To understand if itemizing makes sense for you, let’s review what the standard deductions are for the 2024 tax year. 2024 standard tax deductions are $14,600 for single filers and for those married individuals who file separately. If you are married and file a joint return, the deduction increases to $29,200 and if you are a head of household filer it is $21,900. In other words, if you are going to itemize your deductions, then you need for them to total more than these amounts for it to begin to make sense.

Let’s assume you no longer itemize because your deductions are less than these amounts, however you make significant charitable contributions. Instead of making let’s say $10,000 in contributions in one year for three years in a row, you group your charitable deductions and make $30,000 in charitable contributions in one of the years in which you itemize and then nothing in the other years. You still make the same total charitable contributions; you just do it in one of the three years. Making this large contribution in one year versus over three years, may require some forethought and planning, but it can save significantly on taxes.

According to IRS publication 526, the amount you can deduct for charitable contributions is generally limited to no more than 60 percent of your adjusted gross income. The publication states there are lower limits of 20 percent, 30 percent, or 50 percent depending upon the property you give and the type of organization you give it to. 

Another way to save on taxes is to use a donor-advised fund for your charitable giving. This involves establishing an account and funding it with cash, stocks, or even a private business interest. You can get a tax deduction while the funds you donate can continue to grow and you get to determine what qualified charities you want to support. The advantage of donating appreciated assets is that you get to take a deduction for the fair market value of the appreciated asset you grant to the account, while avoiding the capital gains tax that would be due if you sold the asset and donated the proceeds directly. Keep in mind that when you contribute assets to a donor-advised fund you are making an irrevocable commitment that the funds will be used for charitable giving, so you want to make sure of your intent.

If you have any questions on charitable giving before the end of the year, please schedule a consultation through our website. We’d love to assist you making charitable contributions in a tax-smart manner.

Source: https://www.irs.gov/forms-pubs/about-publication-526

Disclosure:

*Investments are subject to market risks including the potential loss of principal invested. Past performance does not guarantee future results. This information is intended to be for illustrative purposes only and does not reflect any particular investment or investment needs of any specific investor.

Some donor-advised funds are considered mutual funds and are sold only by prospectus. The prospectus will provide information on charges, risks, expenses, and investment objectives and should be reviewed carefully before investing. Investment companies can provide a prospectus, or you may prefer to ask your financial professional. Please read it carefully before you invest or send money.