When it comes to the essentials of tax planning and preparation, one area of annual taxes that seems to foster a range of questions and confusion is charitable donations. This is primarily because charitable donations can take many forms. These include items donated at a local nonprofit thrift store to valued stocks and assets – and there may be guidelines or limitations for each type of donation.
Keeping track of your charitable donations throughout the year is a significant first step in personal tax planning for 2024. However, how do these donations add up, and what more can you do to maximize a charitable donation tax deduction?
A tax planning expert team at Waters Hardy can help you get a jump start on maximizing your charitable donation tax deduction when it’s time to file in 2025, by providing guidance on the small things you can do today that will significantly impact your refund next year.
In the meantime, here are the basic guidelines for charitable donations, and additional tax strategies you can employ now to benefit your financial future.
What Qualifies as a Charitable Tax Deduction?
Generally, a charitable deduction can be taken when a taxpayer gives money, time, or assets to an IRS-qualified 501(c)(3) public charity.
Most charities clearly state whether donations are tax deductible in their documentation and/or website. However, the IRS also has a Tax Exempt Organization Search Tool where you can easily search for an organization’s eligibility to receive tax-deductible charitable contributions and/or search for information about an organization’s tax-exempt status and filings.
How Much of a Donation is Tax Deductible? The Limitations to Keep in Mind
For 2024, the charitable contribution deduction for an individual donor’s cash gift to an IRS-approved charity or donor remains limited to 60% of a taxpayer’s adjusted gross income.
In general, individual donors may claim a tax deduction for the value of appreciated non-cash asset gifts to qualified public charities of up to 30% of their adjusted gross income.
However, it should be noted that charitable contributions can only reduce your tax bill, (or increase your refund), if you itemize your taxes.
Therefore, when it comes to itemizing versus taking a standard deduction, it’s smarter to itemize when the combined total of your anticipated deductions—which includes these charitable donations— is more than the standard deduction.
Here are the standard tax deductions for 2024:
- Filing as Single – $14,600
- Filing as married filing jointly – $29,200
- Filing as Head of household – $21,900
It’s perfectly fine if you’re unsure whether taking the standard or itemized deductions will save you more when the 2024 tax filing season rolls around.
It is important to keep track of your donations and any other potential deductions, such as work supplies or education expenses. In addition, you and your tax professional can make a full and detailed comparison at the end of the year.
Charitable Giving Tax Strategies to Consider
As stated, there are several ways to tackle charitable giving when it comes to your routine tax planning and preparation. Depending on what, when, and how you donate, here are just a few concepts or initiatives to consider.
Using Charitable Donations to Avoid Gains on Stocks
An individual who donates any appreciated stocks to a donor-advised fund – a separately identified fund or account maintained and operated by a section 501(c)(3) organization – can avoid recognizing the capital gain of the sale of the stocks on their tax return. Donating these appreciated stocks, as opposed to selling the stocks and then donating the cash proceeds of the sale, effectively minimizes the donor’s tax burden while maintaining the same level of generosity.
Itemizing Deductions When it Comes to Non-cash Asset Donations
In addition, individuals who itemize deductions and give assets such as stocks, real estate, cryptocurrency, equipment, or even a business interest to a donor-advised fund can also minimize their tax burden by avoiding the capital gains tax on the sale of any or all these items. Again, because the value of these assets remains the same whether they are directly donated as an asset or as the proceeds of the sale of these assets, the technical amount of the donation doesn’t change.
Try a Bunching Strategy to Leverage Deduction Rules
Bunching charitable donations means donating two years’ worth of expected contributions in a single year. Whether this is a smart move for this year, next year, or at some point in the future varies widely based on your unique financial situation. The best way to examine this strategy and see if it will benefit your bottom line is to consult a tax expert like Waters Hardy, who can take a detailed look at your finances and expected taxes.
Take a Closer Look at Your Retirement Assets
Individuals who are 70.5 or older can also distribute up to $105,000 per year, tax-free, from an Individual Retirement Account (IRA) to verified charities through Qualified Charitable Distribution. This can satisfy your required minimum distribution (RMD) for the year and reduce your RMB requirement in future years while lowering your taxable estate and minimizing your beneficiaries’ tax liability. Bear in mind there are some limitations when making a Qualified Charitable Distribution of IRA assets, and a resource like Waters Hardy can fill in the blanks when it comes to questions in this distinctive area of tax law and regulations.
Maximize Your Charitable Donation Tax Deductions with Waters Hardy
At Waters Hardy, charitable donation tax deductions are just one of the many facets we can account for when minimizing the taxes you owe this year and for many years to come.
Therefore, we are always available to answer your questions if you’re unsure how to craft your charitable donation tax deduction strategy for 2024 and beyond. We can help you create an actionable plan that will impact your taxes in 2024 so you are prepared for your 2025 tax return.
Connect with us today to learn more. Our team of tax professionals will guide you on how to maximize your donations’ benefits for your favorite charities and your bottom line.