Written by Kristalyn Shinn and Jennifer Chapdelaine
- QCDs
- Make your annual donations for this year in January of the next year so you can itemize every other year
- Stock contributions – must be long-term to claim donation as FMV on date of gift
You may be open to contributing to a charity but are lacking the advice of the true tax impact. Are you wondering how charitable giving impacts your taxes and what benefit you may derive? Or perhaps there’s a new and fascinating way to donate? Here are some out of the box ways to get a better tax benefit from charitable donations.
If you are over the age of 70.5, take retirement distributions and want to donate to charity, you may consider a Qualified Charitable Donation (QCD). The IRA custodian sends a charitable donation directly to the charitable organization. The distribution is then excluded from your adjusted gross income, which reduces your income tax without limitations. In addition to reducing your income taxes, it also can decrease the amount of social security subject to tax and lower your Medicare premiums. Without a QCD, taxpayers can be up against itemized deduction limitations and not receive the benefit of the charitable contribution.
Another tax planning strategy to maximize tax impact of charitable donations is to delay donations every other year. If you typically donate at the end of a given year, you may consider delaying your annual donation to January of the following year. Then, in the same year you gave in January, give your regular donations throughout that year. For instance, even years delay that year’s donations into the odd year, thus donating two years worth of donations into one year. The even years would not have charitable donations and the standard deduction would be used in even years. This would allow both even and odd year donations to have the greatest tax impact, driven by timing of the donations.
Some taxpayers decide to donate appreciated stock to charities. If you plan to donate appreciated stock, plan to donate the stock after a 1-year holding period has lapsed. If a stock is donated before the 1-year holding period, the charitable donation value received is the purchase price paid for the stock rather than the fair market value on the date of contribution. Donating stocks with a short-term holding period receive a lesser charitable donation than stocks held long-term.
There are various tax planning strategies to consider surrounding charitable donations. The above tax planning strategies can help maximize the tax impact of donations to charity and can help to drive down tax for those regularly made charitable contributions.
