By Eric Siegfried, CPA
For many people, having recently completed their tax returns, April is an opportune time to evaluate tax strategies that could reduce your 2024 tax equation. One option is charitable giving. Here are five strategies to consider for your favorite causes, like Hospice of the Chesapeake, while reducing your 2024 taxes, subject to IRS limitations.
- Donor-Advised Funds (DAFs): A donor advised fund (DAF), which is like a charitable savings account, gives you the flexibility to recommend how much and how often money is granted to qualified charities. You make a tax-deductible gift to establish a donor advised fund now and make grants in the future. It benefits individuals who have a larger than normal year of income by allowing the deduction to be taken in that year, while allowing the contributions to be spread out over several years.
- Qualified Charitable Distribution (QCD): A QCD allows people ages 70 ½ and older to give any amount (up to $105,000) per year from your IRA directly to a qualified charity such as Hospice of the Chesapeake. A QCD may be counted toward satisfying the required minimum distribution for the year. Unlike a regular withdrawal from an IRA, the QCD is excluded from your taxable income. It benefits individuals who take the standard deductions by reducing income where a deduction would otherwise not be advantageous. It also benefits individuals who itemize because it keeps an IRA distribution out of income for other tax return components that have a threshold to exceed based on income, e.g., 7.5% for medical deductions. Also, it can potentially reduce future Medicare premiums compared to taking the IRA distribution without doing a QCD.
- Appreciated Stock: Unrealized capital gains can do a lot of good for a charity while reducing long-term capital gains taxes avoided by not selling the stock directly. In the case of highly appreciated assets, these tax savings may exceed the amount initially paid for the investment.
- Donation Bunching: Donation bunching consolidates donations for two years into a single year to maximize your itemized deduction for the year you make your donations. This strategy works best for taxpayers who would normally use the standard deduction, or in a year of unusually high taxable income.
- Cryptocurrency: Bitcoin and other cryptocurrencies can be donated to charities such as Hospice of the Chesapeake, just like other appreciated assets such as stocks. Keep in mind if you donate more than $5,000 in value you will need to get a qualified appraisal to determine the fair value. Once completed, you’ll realize tax benefits from donating these holdings directly to nonprofits. Hospice of the Chesapeake accepts cryptocurrency through either Crypto for Charity or Endaoment.
Every donation has meaning and purpose. Maximizing your tax benefits can also ensure you are giving as much as possible to causes that matter to you.
Read more about planned giving: https://hospicechesapeake.planmygift.org/
Eric Siegfried, CPA, is a Partner with Mullen, Sondberg, Wimbish & Stone, PA, and Chair of the Hospice of the Chesapeake Planned Giving Advisory Council.
This article is for informational purposes and is the opinion of the author based on current interpretations of the law, which can change with future IRS guidance or additional legislation. Your circumstances may require direct advice from your legal, tax and investment professional.
