Each year, Americans give more than a half trillion dollars to charities, according to the 2024 Giving USA Annual Report. While meeting philanthropic goals is important for donors, these gifts can also provide valuable tax benefits. That’s why year-end planning is so critical. It’s crucial to act now to secure valuable tax benefits since donations must be completed by the end of the year to claim a tax deduction against 2024 income.
Here are some key questions when reviewing charitable giving plans:
1. Are you planning to itemize deductions on your 2024 tax return?
If so, making charitable gifts before the end of the year can further reduce taxable income. Taxpayers need to itemize deductions on their tax return to deduct charitable contributions. An important step is to project income for 2024 to determine your likely marginal tax bracket. This is a key data point because it provides clarity on how much tax savings may be realized from making a charitable contribution before the end of the year. For those claiming the standard deduction this year, charitable giving will not provide a federal tax benefit. For details on 2024 tax brackets see our piece, “2024 tax rates, schedules and contribution limits.”
2. How large of a charitable gift is being considered?
A significant charitable contribution may allow a taxpayer to itemize deductions. For 2024, the standard deduction for single filers is $14,600, and $29,200 for married couples filing a joint tax return (those age 65 or older, or blind, are eligible for a slightly larger standard deduction). Taxpayers would claim the standard deduction unless the total of their (below the line) tax deductions exceed the standard deduction.
Lastly, some taxpayers may benefit from “lumping” several years’ worth of charitable gifts into one tax year to itemize deductions on their tax return. For example, double up on charitable gifts for 2024 and then claim the standard deduction in 2025. In some cases, this can result in higher tax savings than spreading out charitable gifts equally over this year and the next year.
3. Are you at least age 70½ and NOT planning on itemizing deductions?
If you are not itemizing deductions and are interested in giving to a charity, a qualified charitable distribution (QCD) from an IRA would generally make sense since it allows the distribution of tax-deferred IRA funds at a 0% tax rate. This is a more tax-efficient option than writing a check to a charity since taxpayers claiming the standard deduction on their tax return do not receive a federal tax benefit from giving to a charity. For more information on QCDs see our piece “Donating IRA assets to charity.”
4. Do you own appreciated securities or mutual funds?
For many taxpayers, gifting appreciated assets to a charity can make sense. While there are stricter limits on the amount of tax deduction that can be claimed vs. giving cash directly to a charity, gifting highly appreciated assets can be a strategy to limit capital gains exposure.
Choosing the right strategy is key
Given the range of funding alternatives, strategies and different rules for charitable giving, it’s important for those who are philanthropically minded to understand their options. A well-crafted approach can help optimize benefits for the nonprofit organization that is receiving the gift, while providing valuable tax benefits to the donor.
Depending on the type of property being donated and the recipient charity, limits on the tax deduction will vary. For more details see “Understanding charitable giving strategies” and consult with a qualified tax professional for guidance.
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