Podcast: Making Charitable Donations

Making Charitable Donations

Written by Jeff Dvorachek

November 18, 2021

With the increase in the standard deduction, it has been more difficult for people to take advantage of their itemized deductions. Now there is talk in Washington about making this a little easier by allowing a higher amount of state and local taxes to be deducted.

But today, I want to talk about ways to make charitable contributions and get a tax deduction for doing so. I know for many giving to charity is more important than the deduction, but why not get the benefit if you can.

LET’S GO BACK AND TALK QUICK ABOUT THE STANDARD DEDUCTION?

  • Back in 2018, the standard deduction was increased for most people by almost double.
  • For 2021 – $25,100 for married individuals and $12,550 for single individuals
  • Medical expenses, state and local taxes (limited to $10,000), mortgage interest and charitable contributions

WHAT CAN PEOPLE DO TO GET A DEDUCTION IF THEY DON’T ITEMIZE?

  • Above the line deduction of $600 for married couples or $300 for single individuals
  • Must be cash donation (not donations to goodwill)
  • Charitable Donations need to be made by December 31
  • If you are over age 70 ½ you can actually do more

I HAVE HEARD ABOUT THIS, OLDER INDIVIDUALS CAN MAKE DONATIONS FROM THEIR IRA’S RIGHT?

  • Yes, it’s called the Qualified Charitable Distributions (or QCDs)
  • If you are 70 ½ or older, you are eligible to make a QCD.
  • There are certain rules that need to be followed –
    • You cannot take a distribution and use those funds to make the donation
    • It must be made directly from your IRA
    • Must be made by December 31
  • You can donate up to $100,000 per year, per spouse
  • Any donation counts towards your minimum required distribution
  • The way that it works-
    • Have your IRA custodian transfer whatever amount you want.
    • When it comes time to file your taxes, you do not get a charitable donation deduction, but you also do not need to pick up the IRA income on your return.
    • So it does lower your income by the amount of the donation just as if you were to itemize.

WE ALSO TALKED IN THE PAST ABOUT SETTING UP A CHARITY ON YOUR OWN?

  • For wealthy people, they can set up a Family Foundation and make donations to it. Now the deduction is limited, but it is a good option for those individuals.
  • You can also do what’s called a Donor Advised Fund which I like in certain situations.
    • This fund allows a person to make a contribution this year and give it to a charity in a future year.
    • You get the deduction this year.
    • This is normally set up with an investment company.
  • For both of these options, you can make a larger gift this year which will allow the person to itemize.
  • I suggest making these larger donations in the first year – take the deduction – then use the standard deduction in other years. It is a lot more tax-efficient than making smaller gifts every year.

Be sure to talk to a tax professional if you have any questions about making charitable donations.

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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