As the year winds down, now is the ideal time to reassess your charitable giving goals. By this point, you likely have a clear understanding of your income and tax situation, making it the perfect moment to maximize both your impact and potential tax benefits.
Keep in mind that to benefit from charitable contributions, you’ll need to itemize your deductions. If your total itemized deductions don’t exceed the standard deduction—$13,850 for individuals and $27,700 for married couples filing jointly—your donations won’t generate tax savings.
Should You Donate Appreciated Stocks or Cash?
While donating cash is always an option, donating appreciated stock can be a more tax-efficient strategy. Many charitable organizations accept stock donations. When you donate appreciated stock, you avoid paying capital gains taxes, and the charity receives the full value of your contribution. This allows you to support causes you care about while making a smart financial move that benefits both you and the organization.
New Limits on Cash Contributions in 2024
For most donations, cash contributions to qualified charities are generally limited to 60% of your adjusted gross income (AGI). However, there’s still a unique benefit for 2024. Even if you don’t itemize your deductions, you can deduct up to $300 in cash donations ($600 for married couples filing jointly). This deduction applies only to cash contributions, not non-cash donations like goods or stock.
Record keeping is Essential
Proper documentation is crucial when claiming charitable contributions. The IRS requires specific records depending on the amount and type of donation:
- Cash donations under $250
Keep a canceled check, credit card statement, or receipt.
- Cash donations of $250 or more
A written acknowledgment from the charity is necessary.
- Donations where you receive something in return
If you donate $75 or more and receive a benefit in return (such as event tickets), you can only deduct the difference between your donation and the value of what you received.
- Non-cash donations over $5,000
You may need an appraisal from a qualified appraiser.
- Vehicle donations
Follow IRS Publication 4303 for guidance.
Ensure that your donations go to qualified organizations. While helping a family in need during the holidays is a kind gesture, it won’t qualify for a tax deduction. However, donations to recognized non-profits, like churches or the Salvation Army, are eligible. Unsure if an organization qualifies? Use the IRS’s searchable database of tax-exempt organizations.
Qualified Charitable Distributions (QCDs)
For those looking to manage their tax liability efficiently, consider Qualified Charitable Distributions (QCDs). A QCD allows you to transfer funds directly from your IRA to a qualified charity, satisfying your Required Minimum Distribution (RMD) while excluding the amount from your taxable income.
Key Points for QCDs:
- You must be at least 70 ½ years old to make a QCD.
- The maximum QCD amount is $105,000 per year.
- Contributions must go to a 501(c)(3) organization and cannot be made to private foundations or donor-advised funds.
Plan Early for a Successful Year-End
Effective tax and charitable planning should start long before December. The sooner you begin, the more opportunities you have to optimize your strategy. If the details seem complex or overwhelming, let’s connect! Schedule a time with me at WealthFactor, and we’ll help you design a year-end plan that aligns with your goals, so you can start the new year with confidence.
