Whether you itemize or use the standard deduction, here are a few tips for tax-advantaged giving.
Under the Tax Cuts and Jobs Act, the standard deduction was doubled to $12K for individuals and $24K for married couples. While some believe the increase in the standard deduction will impact giving, opportunities for tax-advantaged giving exist regardless of whether you itemize or take the standard deduction.
Watch this 2 minute video to learn about giving strategies:
If you are taking the standard deduction you might consider...
- Setting up a Donor Advised Fund (DAF): Suppose you and your spouse make annual charitable contributions of $10K — that would fall short of the $24K standard deduction for married couples. However, if you set up a $30K DAF to fund annual gifts for 3 years, you would be able to deduct the $30K in year one and continue your annual $10K gifts. In years 2 and 3 you will take the standard deduction.
If you are itemizing deductions you might consider…
- Giving gifts of appreciated assets: The contribution would cover the $24K deduction minimum for married couples ($12K for individuals) and help people limit their exposure to the capital gains tax. Also, future appreciation of the asset will be outside of your estate, rather than pumping up the value of your taxable estate.
- Donating your Required Minimum Distribution (RMD) from your IRA: If you are over the age of 70 ½, you are required to take a distribution of a certain percentage of your IRA each year. If you donate your distribution directly to a charity, the IRA distribution is not included in your gross income. You can donate up to $100K tax-free. An added benefit of this strategy is that lower reported income means you may be eligible for other tax benefits, like the new 20% tax deduction for pass-through income.
You should not make significant decisions based on the tax benefit alone. But you should strategize about how you can optimize your taxes based on your unique goals and priorities.