You may have an opportunity to save more on your taxes by adjusting the way you are donating to charity.
Here are three strategies to consider:
1. Bunch your charitable giving.
Are you going to itemize? With the increased standard deduction amounts it’s common these days for people who have a mortgage and charitable donations to still claim the standard deduction instead of itemizing. This was not often the case before.
In other words, you didn’t have enough itemized deductions to exceed the standard deduction amount. When this happens you essentially get no tax benefit for your charitable donations.
Check your tax return from 2021. Did you itemize or take the standard deduction? Will your 2022 tax situation be similar?
If you don’t think you will itemize in 2022, then it may make more sense to bunch what you would have donated for 2022 AND 2023 into the calendar year 2022 – that way you have more to push you over the limit to itemize in 2022.
2. Donor Advised Funds
This is a similar idea to bunching (#1 above) except you are setting up a “Donor Advised Fund” through an investment company. Most big-name investment houses have them.
Here’s how it works: The date that you contribute money or other assets, such as stocks or crypto currency, into the fund determines what year you get to claim the charitable donation on your tax return.
You then can make the actual gifts to the charities out of the account over successive years at dates of your choosing.
This allows you to bunch several years’ worth of donations (like in strategy #1 above), take the combined tax deduction, but then still make those future years’ donations in the years you would have otherwise.
3. Qualified Charitable Donation (QCD)
This is a great option for IRA owners who are required to take RMDs (required minimum distributions) each year. You can have the donation to the charity made directly out of your IRA distribution by the investment company holding the account.
One of the great benefits of this is that it reduces your Federal AGI (adjusted gross income) by the amount of the donation.
In other words, the donation amount reduces the income that you would have had from the RMD and is not counted as income on your tax return. But it still satisfies the RMD requirement.
Since that AGI number is used for other calculations, such as Medicare premium rates, this can save you money elsewhere also.
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