To Your Wealth: The smart way to donate
Despite the economic ups and downs over the past couple of years (or perhaps because of it), Americans donated over $480 billion to charity in 2021 which was an all-time record as reported by Giving USA. As we reflect on the passing of another year, it’s worth considering how we might help those who are less fortunate than ourselves.
The tax code includes several incentives to encourage us to donate to charities which allows you to stretch your donations even further. Three strategies to consider are qualified charitable donations from IRAs, bunching deductions in a single year, and donor advised funds.
Anyone over age 70.5 with a Traditional IRA can donate directly from their retirement account to charity without paying taxes on the distribution via qualified charitable donations. This is particularly helpful if someone doesn’t usually itemize their deductions so they don’t benefit from the tax deduction for the donation. For 2022, the standard deduction for someone over age 70.5 is $14,700 for single taxpayers and $28,700 for married filing jointly taxpayers. If you’re not close to the standard deduction with all your itemized deductions, it’s definitely worth considering a qualified charitable donation. In order to meet the criteria for donating, I recommend contacting your financial institution to verify the steps required.
If you’re close to exceeding the standard deduction amounts listed above, you could consider “bunching” your deductions into a single year. For example, if you typically make donations of $10,000 per year, you could shift donations from two years into one for a total of $20,000 which makes it more likely you’ll itemize. Multi-year tax planning can get complicated so you may want to prepare tax projections for each year in question to confirm it’s worth the effort of shifting donations from one year to the next.
Another option to consider which can be used in conjunction with “bunching” is contributing to a donor advised fund which essentially separates the timing of when donations are tax deductible from the actual distribution of money to charities. These funds are particularly helpful when there’s a desire to create an enduring legacy as most donor advised funds are created with a perpetual timeframe. If you’re interested in supporting local organizations, consider a community foundation which often administers donor advised funds for multiple people. Racine has its own foundation which you can learn more about at www.racinecommunityfoundation.org.
For more inspiration around giving and smart ways to donate, I recommend Claire Gaudiani’s book “Generosity Rules! A Guidebook to Giving” which at less than 50 pages makes for a quick read. For a more in-depth history of giving, you may enjoy Gaudiani’s longer book, “The Greater Good.”