Society of Certified Senior Advisors: Make Your Giving Tax-Efficient

Don’t wait until tax season to find ways to benefit both yourself and your favorite charities.

If you are charitably inclined, you may send a check to organizations you support or give money via monthly automatic deductions. But did you know that there is a better way to give, one that will benefit you by reducing your taxes and possibly send a larger chunk of money to the charitable institution as well? Let’s look at five tax-savvy strategies for giving that you may want to implement now or put on your calendar for future donations.

2023 Tax Brackets and Standard Deduction

Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).

The other rates are:

35% for incomes over $231,250 ($462,500 for married couples filing jointly)
32% for incomes over $182,100 ($364,200 for married couples filing jointly)
24% for incomes over $95,375 ($190,750 for married couples filing jointly)
22% for incomes over $44,725 ($89,450 for married couples filing jointly)
12% for incomes over $11,000 ($22,000 for married couples filing jointly)

The lowest rate is 10% for single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700, up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.

Itemize. If you have more itemized deductions than the current standard deduction, itemizing is worth it. You can deduct charitable contributions of money or property made to qualified organizations. In general, the IRS allows you to deduct up to 50 percent of your adjusted gross income (AGI), although lower percentages apply in some cases. If you struggle to meet the threshold for itemizing, you can bundle, or bunch, donations from two or more years into one year so that you qualify.
Donate stocks or bonds. If you normally make cash donations or pull out a credit card, consider the benefits of donating appreciated securities directly to your chosen charities. Neither you nor the charity will have to pay capital gains tax, and you’ll be eligible for an income tax deduction equal to the fair market value of the stock or bond, up to 30 percent of your AGI.
Qualified Charitable Distributions. You may want to donate directly from your traditional IRA. As a qualified charitable distribution (QCD), the gift will count toward meeting your RMD for the year. While the money won’t qualify as a charitable deduction, it reduces your taxable income, potentially lowering Medicare premiums as well as overall taxes. It also counts toward meeting your required minimum distribution. You must be at least 70 ½ to use a QCD and meet other requirements.
Donor-Advised Funds. If you are a substantial giver, you may want to create your own charitable giving fund. Using a donor-advised fund (DAF), you can claim the tax deduction that year and then distribute the money over the coming years. Assets in the fund can be invested, and any resulting growth is tax-free. You can even use appreciated securities to make the initial investment.
Charitable Gift Annuities. Large institutions and charities often offer charitable gift annuities to donors with as little as $5,000 to give. You make a donation, which is kept in an account where it is invested. This funds a monthly or quarterly payout to you, the annuitant, for as long as you live. Upon your death, the charity gets whatever is left in the account. Your initial donation can be made in the form of cash, securities, or personal property. Annuitants may be able to deduct a portion of the original gift, and a portion of the payments they receive may be tax-free, based upon life expectancy.

Be sure to sit down with your financial consultant or tax advisor now to strategize your giving for years to come. One plan may be right for you now, while another could be most beneficial in the future. It’s worth consulting a professional to make sure you are meeting all requirements while still getting the maximum return for your giving.

This article is not intended to be a substitute for professional financial advice from a qualified financial advisor.