Give to Receive: Understanding How Charitable Giving Can Benefit Your Taxes

Give to Receive: Understanding How Charitable Giving Can Benefit Your Taxes

April 17, 2023

Throughout the years, I’ve had many questions arise regarding charitable gifting. Some individuals enjoy gifting throughout their lifetime, and there are some tax advantages to consider.

If You're Over 70.5 Years Old:

If you’re over 70.5 years old, you’re able to gift through your IRA as a Qualified Charitable Distribution (QCD) directly to the charity of your choice. While this won’t reduce your taxable income, you won’t pay tax on the gift. You’re able to gift up to $100,000 from your IRA in 2023. If you’re 73 years old, you’re required to take Required Minimum Distributions (RMDs) each year from your IRA. If you give a QCD, it’ll reduce the amount of RMD you pay tax on. For example, if your RMD was $50,000 and you didn’t gift a QCD, you’d pay tax on the entire $50,000. If, however, you gave $10,000 to a charity of your choice through a QCD, you’d only pay tax on $40,000.

If You're Under 70.5 Years Old:

If you’re under 70.5 years old, there are still other ways you can gift to charity and receive a tax benefit. If you’re itemizing your deductions, you’re able to add your cash and non-cash donations to the schedule to help reduce taxes. If you have an appreciated asset in a retail account, you’re able to gift the asset directly to charity, thus avoiding capital gains tax.

To Itemize or Bunch?

There are limits on how much you can deduct for charitable deductions each year when you itemize. In 2023, cash donations can make up 60% of your AGI, and appreciated assets can make up 30% of your AGI. If you donate more than the limit, you’re able to move that amount forward to the next tax year. Please speak with your accountant if your donations are going to be above the limits, as there are limitations on how long you can move the additional amount forward to the next tax year.

If you aren’t itemizing your deductions, you may consider “bunching,” where you group multiple donations into one year. For example, as a single filer, the standard deduction for 2023 is $13,850 (if you’re under 65 or blind). If your initial goal was to give $10,000 (annually) to charity, you would give $20,000 every two years instead, so you could itemize deductions every other year.

As always, please check with your accountant before you start gifting to ensure the most tax-advantaged strategy is being implemented. Please contact your advisor to discuss donation options if this is of interest to you and meets your long-term goals.