The 2018 Tax Cuts and Jobs Act (TCJA) raised the standard deduction from $6,500 to $12,000 for individual filers and from $13,000 to $24,000 for joint returns. The IRS estimates that nearly 90% of Americans are now taking the standard deduction. With less people itemizing their deductions, 2019 saw a major drop in charitable contributions.
Here are four tax friendly ways to make charitable contributions to your favorite nonprofits.
1. Bunch charitable contributions. Rather than donating to your favorite charities yearly, bunching involves making large charitable contributions every few years. The goal is to have itemized deductions that exceed the standard deduction in the year you make the donations and take the standard deduction in years you don’t. This way, you can still reap the tax benefits of giving.
2. Set up a donor-advised fund. A donor-advised fund is a charitable giving vehicle set up with a public charity. Donors can make charitable contributions of stock, cash, or other assets such as art work or real estate and take an immediate tax deduction for it. The assets are invested and managed by a sponsoring organization, who allocates them to nonprofits of the donor’s choosing.
3. Give appreciated stock. An increasingly popular option is to donate stocks, bonds, or mutual funds that have appreciated for more than a year. By donating the stock, you avoid paying capital gains tax like you would by withdrawing the money and donating cash.
4. Make qualified charitable contributions. When you reach age 70 ½, you can use funds from your traditional IRA to donate to approved charities using qualified charitable distributions (QCDs). QCDs are taken out (of a regularly taxed IRA) tax free for charitable contributions of up to $100,000 annually. QCDs also count as a distribution to fulfill the required minimum distribution rules, which you’d otherwise have to receive and pay taxes on.
Don’t let changes in the tax code thwart your philanthropic efforts or rob you of your tax breaks. With creativity and proper planning, your charitable gifts can be the kind that keep on giving.