Warren focuses his practice on advising individuals, businesses, and other organizations regarding federal, state, and local taxation, and he leads Obermayer’s Tax Practice Group. Warren is also a partner and member of...Read More by Author
It’s the Most Wonderful Time of the Year…Maximizing Your Year-end Charitable Donations
As the year is quickly drawing to a close, many of us are looking to donate to different charitable organizations. Whether you make your donations in person or via the internet on Giving Tuesday, you will want to maximize the impact of your donations for you and the charitable organization you are supporting.
Donate Appreciated Property Instead of Cash
Most contributions of cash or property made to a charitable organization are tax deductible as an itemized deduction. Cash contributions include those made by credit card or debit card, as well as unreimbursed out-of-pocket expenses connected with your volunteer services to a charitable organization.
Donations of property are generally deductible at their fair market value. A major exception to this general rule is the donation of closely held stock to a private foundation. This means giving appreciated property such as cryptocurrency, real estate, stock, and other business interests may increase the value of your donation while reducing your taxes. With this strategy, not only would you be able to claim a deduction for the fair market value of the property but you could avoid the capital gains tax you would otherwise incur if you had sold the property and then donated the cash from the sale. As a result, donating the appreciated property directly to the charitable organization allows you to donate more while paying less taxes.
Qualified Charitable Distributions
If you are age 72 or older, to avoid a hefty tax penalty you are required to take Required Minimum Distributions (RMDs) each year from your individual retirement account (IRA). The RMDs you receive are taxable to you as regular income.
To satisfy all or part of your RMDs for the year, you can make a qualified charitable distribution by directing your IRA to make a distribution directly to a charitable organization of your choice. In addition to satisfying your RMDs, up to $100,000 of the qualified charitable distribution may be excluded from your income. With this strategy, you are donating the same amount but paying less taxes.
For 2022 the standard deduction for married couples filing jointly is $25,900 and for single individuals is $12,950. As a result, you may find that it is more beneficial to take the standard deduction rather than itemizing your tax deductions. By taking the standard deduction, you would not be able to utilize any charitable deductions for the year.
If you make significant donations to charitable organizations but still find that your tax deductions fall slightly below the standard deduction, you may want to consider bunching a couple years of donations into one tax year. This way, your tax deductions for that tax year may exceed the standard deduction and allow you to itemize your tax deductions. This strategy takes some planning, but it helps to utilize the charitable deductions that would otherwise be lost.
As you apply these strategies to your year-end giving, double-check that the charitable organization is tax-exempt and eligible to receive tax-deductible charitable contributions. Also, do not forget to document your donations and get a written acknowledgment from the charitable organization for any donation of $250 or more.
This alert is intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.