Here’s how to score a charity tax break on Giving Tuesday
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You must detail to claim the charitable deduction
When filing your return, you reduce your taxable income by subtracting the greater of the standard deduction or your total itemized deductions – which may include charitable donations.
Former President Donald Trump’s tax overhaul in 2017 nearly doubled the standard deduction, making filers less likely to itemize.
For 2022, the standard deduction is $12,950 for single filers or $25,900 for married couples filing together. And if you get the standard deduction in 2022, you can’t claim an itemized deduction for charitable donations.
Aim to give profitable assets
If you expect to itemize deductions, your charitable write-off depends on the type of asset you donate.
Juan Ros, CFP at Forum Financial Management in Thousand Oaks, Calif., said profitable investments in a taxable brokerage account are “usually the best kind of asset to give away.”
Here’s why: By donating an appreciated asset, you’ll receive a charitable deduction equal to the fair market value while avoiding the capital gains taxes you would otherwise have had to pay when selling, he said.
Of course, you’ll want to confirm that your preferred charity can accept non-cash donations.
With most portfolios down 15% to 25% for the year, it can be tempting to get rid of stocks that have fallen in value. But it’s better to sell those assets, reap the losses and donate the cash proceeds to charity, Ros said.
Consider a charitable transfer from your individual retirement account
If you’re 70.5 or older, donating directly from a traditional Individual Retirement Account is “usually the best way to give,” said Mitchell Kraus, CFP and owner of Capital Intelligence Associates in Santa Monica, in California.
The strategy, known as “qualified charitable distribution” or QCD, involves a direct transfer from an IRA to a qualifying charity. You can donate up to $100,000 per year and this can count as your required minimum distribution if you transfer the money at age 72.
Because the donation doesn’t show up as income, you’ll still get tax relief, even if you don’t itemize deductions, Kraus said. Reducing your adjusted gross income can help avoid triggering other tax issues, such as higher Medicare Part B and Part D premiums.