As the year winds down, we want to ensure you take advantage of all the available charitable giving strategies. Donations to charitable organizations are deductible from your gross income, which means you can reduce the taxes you owe to Uncle Sam. So if you're looking to give a little extra this holiday season or even throughout the year, some strategies could help you save on taxes while giving back to meaningful causes. Here are some ways to give more while saving on taxes through innovative year-end charitable giving strategies.
Donate Appreciated Securities
If you have investments held longer than a year that have increased in value since you bought them, you can donate those investments to charity. The charity will then sell the security and use the proceeds for charitable purposes. This is one of the best ways to reduce your income tax bill because you’ll receive a deduction for the total fair market value of the security and avoid paying capital gains tax.
Donate Depreciated Securities
If you sell a security that has declined in value since you purchased it, you can donate the cash and deduct the loss on your tax return. Donating depreciated securities in this way enables you to claim a charitable giving deduction and offsets capital gains and up to $3,000 of income.
Combine Charitable Contributions
If you expect the total value of your itemized deductions to be less than the standard deduction for 2022 — which is $12,950 for single filers or $25,900 for married couples filing jointly — consider the option of bunching two years of charitable contributions into 2022. You'll then itemize your deductions on your 2022 tax returns and take the standard deduction for 2023. This way, not only will you have a more significant charitable impact in 2022, but you may potentially achieve a larger two-year deduction than you would through two years of itemized deductions.
Employ a Donor-Advised Fund
Giving charitable contributions through a donor-advised fund allows you to donate cash or assets, such as appreciated securities while avoiding capital gains and potentially future estate taxes. In addition, this fund grows tax-free, and you can make contributions over time to charitable causes. This strategy can be beneficial during high-income years when you want to take advantage of a larger tax deduction.
Donate Other Appreciated Securities
As with other publicly traded securities, selling a highly appreciated asset such as real estate or privately held business interests at a profit typically incurs capital gains taxes. However, donating the asset before selling it can avoid capital gains while taking a charitable contribution deduction. Because these types of contributions require extra steps, such as a qualified appraisal, we recommend working with our wealth advisors for guidance throughout the process.
Maximize Retirement Plan Withdrawals or Conversions
If you're planning to make a withdrawal from a tax-deferred retirement account, such as a traditional IRA, you can use your withdrawal to make a charitable gift. By applying the charitable rollover strategy, you can roll over your required minimum distribution directly to a qualified charity. Again, this enables you to take advantage of charitable deductions while offsetting your tax liability on the withdrawal.
These are just some strategies you can use to increase your charitable giving while limiting your tax liabilities for the year. If you're looking for additional ways to maximize your charitable contributions and income, get in touch with us. We help our clients identify strategies for each situation, allowing them to make the most of every dollar for year-end tax planning and the long term.