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2023 Tax Rules and Tips for Cost Effective Charitable Giving

by | Apr 1, 2024 | 2024, Tax planning | 0 comments

At a time when so many people want assistance, there are still several fiscal and charitable advantages to giving back.

When planning out their taxes, individuals and married couples must make a critical decision about charity gifts. Choose the standard deduction, which is $13,850 for singles and $27,700 for couples filing jointly, or itemize all of your 2023 receipts.

Itemizing may be a laborious process. However, you can save money if your itemized costs exceed the standard deduction and the new tax laws for 2023 benefit you.

The tax laws imposed as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which enabled taxpayers to deduct 100% of their adjusted gross income (AGI) for monetary gifts in 2020 and 2021, have already expired. The new threshold is 60% of AGI for cash donations held for more than a year, and 30% for non-cash assets.

Another temporary provision in the COVID-19 relief law has also expired. Previously, taxpayers who accepted the standard deduction could claim up to $600 in cash gifts to qualifying organizations without having to itemize. This is no longer the case.

Despite these changes, there are several methods to make your giving benefit both the charities you support and your tax returns.

Here are some tips to help you do both:

  • Bundle your donations.
  • Investigate Donor-Advised Funds
  • Give stocks and bonds.
  • Utilize your IRA.
  • Calculate the tangible and intangible effect of your donations.
  • Seek skilled professional guidance.

Bundling your 2023 – 2024 donations

Since the Tax Cuts and Jobs Act was passed in 2017, the standard deduction has grown yearly, with another increase expected for the end of this year.

For 2023 tax returns, the standard deduction is $13,850 for individuals and $27,700 for married couples filing jointly. Individuals 65 and older or blind are additionally eligible for an extra standard deduction of $1,850, and $1,500 per person if married and filing jointly, respectively.

These higher amounts may make itemizing more difficult, but it is now mandatory for anyone who wishes to deduct their charitable contributions. This is where bunching can help.

Bunching consists of combining two years of yearly contributions into one, itemizing the year of the donations, and claiming the standard deduction the following year.

The advantages of bunching: Bunching can result in a bigger combined total deduction over two years than standard deductions. Of course, there is the added bonus of making a difference.

If you have chosen to group your charitable gifts in 2023 or are considering it in 2024, see an accountant. There are restrictions governing income level, filing status, and donations that might influence how you file your 2023 tax return and future charitable contributions.

Donor-advised funds — flexible, easy to manage, convenient.

Donor-advised funds (DAFs) are another straightforward and tax-efficient option to give to charity.

A donor-advised fund functions similarly to an investing account, allowing you to make philanthropic contributions to the organization or organizations you support. Donor-advised funds take cash, stocks, bonds, and other assets, the majority of which are tax deductible.

Donor-advised funds provide flexibility. You can make annual gifts to nonprofit organizations through a donor-advised fund as long as they are an IRS-qualified 501(c)(3) charity.

Many financial organizations, such as Schwab, Fidelity, and Vanguard, provide donor-advised funds. Donor-advised funds are an excellent method to continue contributing – your contributions may be made over time — while still benefiting from the tax advantages that itemizing provides. Another advantage: your gifts are invested, allowing your funds to grow tax-free.

For taxpayers 70½ or over: Utilize your IRA

Beginning in 2023, you will have two options.

As in previous years, you could donate assets from your IRA accounts to charity without paying taxes (qualified charitable distribution, or QCD). Your necessary minimum payout, which would otherwise be taxed as income, can be sent to charity tax-free. As a result, you can meet your minimum distribution requirement while also lowering your yearly income.

What has changed in 2023? A charitable contribution annuity can be funded with a lump sum transfer of up to $50,000 from an IRA. Those who choose this technique benefit from a tax-free lifetime payout when utilized as a charitable contribution. In 2024, the once-in-a-lifetime dividend will be $53,000.

You can always consult your partners at PSA CPA to find out if any of these strategies are appropriate for you.


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