If done correctly, the donations you make to charities or non-profits can save you a significant amount in taxes. We’ve developed a list of some strategies to consider and discuss with your Austin Asset advisor:
Donate appreciated securities
If you donate a stock that has appreciated, there are two ways you can save: first, stock appreciation isn’t taxed, and second, if you itemize deductions on your tax return, you might be able to deduct the full value of the stock.
Itemize deductions every other year
The Tax Cuts and Jobs Act of 2017 (TCJA) increased the standard deduction amount dramatically, causing most taxpayers to favor the standard deduction instead of itemized deductions. Taking the standard deduction, while simplifying tax preparation, will cause you to lose any tax benefits from making charitable contributions. By grouping your charitable contributions every other year, you can itemize—and save taxes—every other year.
High-income taxpayers who want to contribute significant amounts to their church or charity may consider a donor-advised fund. This vehicle allows the taxpayer to make a large deductible contribution to itemize that year and then instruct the donor-advised fund to release a specified annual amount to the organization in the coming years.
Qualified charitable distributions
Upon turning 70½ years old, taxpayers must begin taking Required Minimum Distributions (RMDs) from their Individual Retirement Accounts (IRAs). These distributions are taxable and must be taken from the account even if the taxpayer does not need the money for fundamentals. One way to reduce or eliminate the taxes is to make a Qualified Charitable Distribution (QCD) directly from your IRA to your chosen charity or non-profit as QCDs are not taxable and can satisfy part (or all) the annual RMD requirement.