With the new year quickly approaching, it may be time to evaluate your charitable giving strategies to make the most of your contributions for 2022. Whether you are committed to supporting the arts, the environment, education or other causes, a tax-smart approach to year-end giving could reduce your tax exposure and increase your philanthropic impact. Here are a few examples of tax-smart strategies you can use to increase your giving power.
Give During Retirement with a QCD
A Qualified Charitable Distribution (QCD) can provide tax savings to individuals and couples age 70 ½ and older. Starting at age 72, the IRS requires annual withdrawals called Required Minimum Distributions (RMDs) from tax-deferred retirement accounts, such as IRAs. Rather than taking these withdrawals directly and potentially moving into a higher tax bracket, a QCD allows a direct transfer of funds from your IRA to a qualified charity and satisfies your RMD for the year.
Consider a Donor-Advised Fund
A donor-advised fund (DAF) is one of the easiest and most tax-advantageous ways to give to charity. A DAF is a charitable investment account offering a flexible, simplified approach to supporting charities, while potentially maximizing charitable contributions and tax benefits. When you contribute qualified assets to your DAF, you are eligible for an immediate tax deduction that can be claimed the year you donate.
Bunch Your Contributions
Combining or “bunching” two or more years of contributions into one tax year can boost your itemized deductions for that year. In the years that you bunch your donations, you can itemize and claim the charitable deduction. Then, in alternate years, take the standard deduction. This method maximizes the tax benefit of your charitable contributions.
Donate Appreciated Assets
By contributing appreciated assets directly to charity, such as real estate or stocks, you could avoid capital gains tax and receive a tax deduction for the fair market value of the contribution. This strategy can deduct a significant percentage of your adjusted gross income. [1] Verify with your chosen charity that they will accept appreciated assets, and work with your CPA and financial advisor on the best approach.
A Smarter Way to Give
At Willis & Machnik, we understand the value of community involvement – donating time and resources to improve the places where our clients live, work, and play. Support the causes closest to your heart by making charitable contributions part of your financial plan. Contact us today to get started and let us be your complete wealth management partner.
[1]https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions