It’s the season for giving! Therefore, it’s a good time to understand charitable options and how they impact you and your finances, especially when it comes to taxes. December is the season of giving for our friends, families, and charities. Most of us donate to help others, but there are some tax consequences we should be aware of.

There are far fewer people who get a tax break for charitable giving compared to a few years ago. This is likely because of the 2018 tax changes that almost double standard deductions. After you adjust your gross income on your tax return you may take an itemized deduction for things like your mortgage, medical costs, and charitable giving.

However, if you are married and your itemized deduction is up to $20,000 you may be better off taking a standard deduction as joint filers of $25,100 or $27,800 if you are over 65. Because of these numbers, more than 87% of people take that standard deduction.  

Even though this higher standard deduction lowers the number of people taking itemized deductions, there are still a lot of smart ways to get a tax break when giving to charity. Those over the age of 70 and a half (required minimum distributions start at 72) can essentially double-dip. They can get both a higher standard deduction as well as a qualified charitable distribution from their IRA that counts towards their required IRA distribution for the year. 

If you give to a charity straight from your IRA the amount you give won’t be taxed. You can still take the standard deduction in this case. You do need careful organization and collaboration with your tax preparer, but you should be aware of this option. 

What about those people that want to donate appreciated stock or real estate? We are seeing more and more of this. The best value, in this case, might be to donate the stock directly to the charity. So, you get the tax deduction for the gift and you avoid the tax on any gain. There are limits to this to be aware of but it’s a nice idea for those charitably inclined. 

From an estate planning standpoint, it’s probably a better idea to leave a part of your traditional IRA to a charity as opposed to your Roth IRA or even a CD or cash. Traditional IRA money is only tax-deferred, you’ll have to pay those taxes at some point unless it’s given to a charity. Adding a charity as an IRA beneficiary can be pretty simple with only a few forms. It’s better to leave Roth IRAs or cash to the family.

At the end of the year, cash gifts are more common. You can give up to $15,000 a year per person without a gift tax. If you pay the education or medical expenses directly for the recipient of a gift it doesn’t count towards that $15,000 limit. 

More Resources: 

Gift money now, before estate tax laws sunset in 2025

https://www.forbes.com/sites/ashleaebeling/2020/12/22/new-bigger-charitable-tax-break-for-2021-in-year-end-spending-package/?sh=56747c5a5710

https://www.kiplinger.com/taxes/tax-deductions/601993/charitable-tax-deductions-an-additional-reward-for-the-gift-of-giving

https://www.kiplinger.com/taxes/603773/5-year-end-moves-to-help-retirees-trim-their-tax-bill

Listen to the full episode to learn more or skip around to certain topics.

[4:09 ]– Itemized deductions vs. standard deductions

[8:20 ]– Allowance of $300

[9:39] – RMDs and giving

[12:14] – What if you are under 70 and a half?

[13:45] – Donating appreciating stock or real estate

[16:04] – Estate planning standpoint

[18:22] – Cash connection question