How to Give More to Your Favorite Charity and Less to the Government in Taxes

Choosing to support your favorite charity is not only a noble endeavor but also a smart financial strategy under the right circumstances. By understanding how to maximize your donations and minimize your tax liability, you can make a more significant impact both to the charity of your choice and on your tax bill. Here’s how you can optimize your charitable giving for the greatest mutual benefit.

Leverage Tax Deductions

When you make a donation to a qualified charitable organization, that donation can often be deducted from your taxable income, reducing the overall amount of tax you owe. To take advantage of this, you’ll need to itemize your deductions on your tax return instead of taking the standard deduction. This makes it especially beneficial to consolidate or "bunch" multiple years of contributions into a single tax year, maximizing your deductions in one year and taking the standard deduction in others.

Consider the Timing of Your Donations

Timing can significantly affect your tax benefits. For example, if you anticipate a higher tax rate in the current year—perhaps due to exceptional income—it’s a good year to increase your charitable contributions to offset the higher taxable income. Conversely, if you expect a lower income next year, you might hold off on making certain contributions.Donate Appreciated AssetsInstead of just giving cash, consider donating appreciated assets such as stocks, bonds, or real estate. If you’ve held these assets for more than a year, you can donate them to charity and potentially avoid paying capital gains tax on their increased value. This means the full value of the asset goes to the charity, and you can deduct the full amount on your tax return, providing a double financial benefit.

Use Retirement Accounts

If you are aged 70½ or older, you can transfer up to $100,000 annually from an IRA directly to a charity through a Qualified Charitable Distribution (QCD). This type of donation can count towards your Required Minimum Distributions (RMDs), without the transfer counting as taxable income. This can be a highly tax-efficient way to give, particularly if you don’t need the RMD for your daily living expenses.

Explore Donor-Advised Funds

For those who want to give systematically, consider using a Donor-Advised Fund (DAF). You can make a charitable contribution to the fund and receive an immediate tax deduction in the year you contribute, then recommend grants from the fund to your favorite charities over time. This allows you to batch contributions in a tax-efficient manner while maintaining a consistent support to your chosen charities.

Understand the Impact

Consulting with a tax advisor or financial planner can help you understand the nuances of charitable tax deductions and how to strategically plan your giving. This will help ensure that you maximize both the immediate and long-term benefits of your generosity, aligning your philanthropic goals with your financial planning.

Conclusion

Giving to charity is rewarding, both emotionally and financially. By strategically planning your charitable contributions, you can help ensure that more of your money goes to the causes you care about, rather than to taxes. This thoughtful approach not only benefits your favorite charities but also helps to optimize your financial landscape.

Any opinions are those of Mark Vivian and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual results may vary.

Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.