Each year, over 35 million households claim a deduction for charitable donations, with the average donation amounting to $5,508 [source: USA Today].
Over a lifetime, these charitable gifts can really add up, becoming an important tool for leaving a lasting impact.
But in 2018, changes to the federal tax laws have made it difficult for many households to claim deductions by raising the standard deduction for single filers and married couples. New regulations have also imposed limits on state and local deductions.
Today, those who want to give back need to give smart.
Bunch your contributions
Time your contributions to fit more inside one tax year. This makes it more likely for you to be able to exceed the standard deduction and get a write-off.
For example, let’s say you contributed $8,000 to a charity in one tax year, rather than two separate gifts of $4,000 over two tax years. This would double the amount you could claim on your return, making it easier to be over the standard deduction.
If you’d rather continue making annual gifts, consider a donor-advised fund, which allows you to make a charitable contribution and receive an immediate tax deduction.
Donate appreciated assets
Give shares of stock, mutual funds or exchange-traded funds that have grown in value over time. As long as the asset has been held in a taxable account you’ve owned for over a year, you can get two potential opportunities for a tax break.
First, you can avoid the capital gains tax on the asset by donating it, reducing your taxable income. Second, you can itemize the donation and claim it on your return during that tax year. It’s a win-win.
That said, there are some limitations. Make sure your asset is valued at no more than 30% of your gross income.
Use your IRA
When you hit 70.5 years old and you’re making the minimum required withdrawals from your IRA, you can give a portion of your withdrawals to charity as a Qualified Charitable Deduction.
You can give as much as $100,000 annually, as long as the donation goes directly to charity. Because this money is not going to you, these donations would not count as part of your adjusted gross income, helping you avoid taxes on your IRA withdrawals.
Maximize your impact
Giving smart isn’t just about maximizing your deductions — it’s also about maximizing the impact you can leave on an organization and your community.
Get choosy about which nonprofits you give to. Before selecting an organization, do your research. Find out what tax classification they’re in, how you can document your donations and where your money is being used. Read reviews and reports on the organization looking for verifiable impact (statistics, measurable benefits, etc.), rather than just feel-good stories.
By narrowing your giving to a handful of organizations you really believe in, your contributions can go even farther.
Looking for help determining what approach is best for you? Contact Helmstar. We can work closely with your CPA and other tax professionals to ensure you maximize both the tax benefits and impact of giving.