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LAS VEGAS – Tax savings are not usually the main reason for charity. But if you plan to donate money, some charitable giving strategies provide a larger tax benefit.
Since the Tax Cuts and Jobs Act of 2017, there has been a higher standard deduction, said Christopher Hoyt, a law professor at the University of Missouri at Kansas City, making it difficult to claim charitable tax breaks.
Hoyt, speaking at the annual conference of the American Institute of Certified Public Accountants in Las Vegas on Tuesday, said nearly 33% of taxpayers took itemized deductions in 2017, compared to less than 10% in 2021.
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For 2023, the standard deduction is $13,850 for single applicants and $27,700 for married couples filing together, and there is no benefit from itemized deductions—including for charitable gifts, medical expenses, and more—until the combined amount exceeds the standard deduction.
Given these limitations, Hoyt said, investors can maximize tax breaks by “bundling gifts.” “Concentrate your gifts on one year, rather than spread them out over several.”
Consider donor-advised funds for “pooling”
One popular option for collecting gifts is what’s called a donor fund, which provides a tax break up front while serving as a charitable checking account for future gifts.
Donor-advised money has exploded since the 2017 tax code change, and more than 75% of it is less than five years old, according to Hoyt. However, it’s unclear if it will remain popular once the standard discount Sunset increases in 2026.
The best assets to give to charity, including donor-advised money, are usually profitable investments from a brokerage account, because you can bypass capital gains taxes, resulting in a larger gift to charity.
The organization stated that nearly 60% of the 2022 contributions to the donor-advised Fidelity Fund were non-cash assets, such as stocks, and many chose to donate assets with internal gains.
Switch to individual retirement accounts at 70°C
Once you’re 70 or older, Hoyt said, it’s usually best to donate money from pretax individual retirement accounts, known as qualified charitable distributions, or QCDs.
You can donate up to $100,000 a year from your pre-tax IRA, he said, and the “secret sauce” is that QCDs can meet required minimum distributions.
“The big winners are benefactors who take the standard deduction,” Hoyt said, because QCDs are not considered income, which can penalize seniors with Medicare Part B and Part D premiums.
To qualify, you must transfer money directly from the IRA to an eligible charity and obtain confirmation from the organization that you received no benefit in return, he said.
