If you’re charitably inclined and you itemize deductions, charitable giving can be one of the most powerful tools in your tax planning toolbox. You can potential deduct up to 100% of a donation to a qualified charity if you itemize deductions. Let’s dive into some charitable strategies to implement before year end.

Reduce taxes for 2023

Current law lifts two major barriers to deducting charitable donations through 2025. First, it eliminates AGI-based phaseouts for itemized deductions. Second, it increases the limit on your annual deduction for qualified charitable donations of cash from 50% of AGI to 60% of AGI. Lower limits may apply to certain donations. Beware of these limits and donation deadlines as you consider year-end charitable giving.

If you decide to take the standard deduction (rather than itemize deductions), you could lose out on this tax break. The standard deduction for single taxpayers in 2023 is $13,850 ($27,700 for those filing jointly). That means that you won’t get the tax benefit of your donations if your total itemized deductions are below this amount.

4 considerations

Give long term appreciated securities instead of cash- Before you write that check or dip into your wallet, think about contributing stocks, bonds or mutual funds instead. Generally appreciated publicly traded securities can be donated to charity with the added benefit of not paying tax on the gains if it was otherwise sold. You can claim the fair market value (FMV) as an itemized deduction on your tax return subject to Adjusted Gross Income (AGI) limits.

Think about establishing a donor advised fund (DAF)- A donor advised fund (DAF) also known as a charitable gift fund or philanthropic fund allows the donor to make a tax-deductible contribution to the fund and then recommend grants from the fund to a specific public charity. This is great for year-end tax planning if you’re not yet sure which charities you would like to support but want to get the tax deduction before year end.

Consider bunching your donations – If your itemized deductions are close to the standard deduction each year, consider bunching your donations into one year. Under this strategy, you contribute in year one what you would have contributed over the next three or four years. This can provide a better bang for your buck and ensure you don’t lose some of the benefit of your charitable tax deduction because you fall under the standard deduction.

Consider a qualified charitable distribution from an IRA- Do you have an IRA and are you receiving Required Minimum Distributions (RMDs) from the account? Another consideration is making a qualified charitable distribution from an IRA. QCD can help you lower your taxable income and benefit the charities of your choice, because it does not have to be included in your income. It is considered an “above the line deduction” meaning that it is a reduction to your gross income as opposed to a potentially limited itemized deduction. You can donate up to $100,000 per spouse directly from your IRA's subject to certain limitations.

Don’t forget to check out our Year End Tax Planning Guide for Individuals.

Questions? Need help implementing these strategies? Contact us.