This time of the year is often referred to as the giving season and for the right reason: Americans tend to give more in the last quarter of the year than any other. With the end of the year coming up, there are a few things to be mindful of if you are charitably inclined.
For those looking to write off their charitable deductions against their earned income for the year, it is important to understand the difference between taking the standard deduction vs. the itemized deduction when filing your taxes. The 2017 tax code reform brought with it a significant change regarding the standard deduction taxpayers could take. In 2019, for those filing taxes Married Filing Jointly, the standard deduction is $24,400, and for single taxpayers it is $12,200.
For many taxpayers, these standard deductions will exceed what they would be able to otherwise write off as itemized deductions. Itemized deductions could include, for example, mortgage interest and state/local taxes up to $10,000. Charitable contributions also fall into this category of itemized deductions. What this means for those who are charitably inclined, is that they will only benefit further from a tax perspective if their charitable contributions plus any other itemized deduction exceeds what they would otherwise be able to claim for the standard deduction.
Ways in which you can give
- Cash: This is the most common but also the least tax efficient way to give.
- Donating appreciated assets: If you have highly appreciated assets in non-retirement accounts, you can gift these assets directly to a charity without realizing any capital gains tax.
- Qualified charitable distribution: If you are over 70 ½ and are taking required minimum distributions from your IRA, consider a qualified charitable distribution. This allows you to donate up to $100,000 of your distribution directly to a charity of your choice, while being able to exclude the distribution from your income for the year.
- Services: Volunteer services performed for a charity or services donated to a charitable fundraiser are not deductible. However, unreimbursed out-of-pocket expenses incurred during the performance of those services are deductible, such as travel expenses to attend board meetings as a charity board member.
- Donor advised fund: Donating to these funds allow for you to recognize tax benefits immediately upon contributing assets to the fund but allow you more control over the timing of your gifts. This type of account is available through Schwab and we encourage you to learn more by clicking on the link or asking your advisor if this may be the right fit for you.
Where to donate
Many charitable givers choose to donate to certain organizations for non-tax reasons. However, it’s also important to understand which organizations are qualified charitable organizations to determine eligibility for a tax deduction. The IRS has provided a Tax Exempt Organization Search to help identify entities eligible to receive tax-deductible charitable contributions. The search also provides information about types of eligible entities that may not be included on the list.
Our team of advisors at Souders Financial Group is happy to discuss how charitable giving may fit into your overall financial plan. For more detailed questions around the tax considerations of giving, we recommend you consult with a licensed tax advisor.