With tax season in the rearview mirror some are sighing from relief, and some may be wondering what they could have done differently to lower their taxes. It is never too early, or too late, to speak with your financial advisor about tax strategies, overall financial planning for the year ahead, and charitable giving. Here are some topics to consider having a conversation about surrounding philanthropic giving strategies for 2024.
First, an overview of the 2024 Giving and Tax Landscape:
- Charitable Deduction Limits – When itemizing deductions on tax returns, the annual deduction limit for gifts to public charities is up to 30% adjusted gross income (AGI) for donations of non-cash assets held more than one year and up to 60% AGI for cash donations. If the deduction amount exceeds these AGI limits, the excess amount may be carried forward up to five additional tax years (this is subject to AGI limits each year).
- Standard Deductions – Itemizing deductions makes sense when the total of all deductions exceeds the standard deduction. For 2024, the standard deduction amount is $14,600 for single filers and $29,200 for those filing jointly.
- Appreciated Non-Cash Assets held more than one year – Donating these assets can unlock additional funds for charity. Frist, this can potentially eliminate capital gains tax that would have been incurred when selling these assets and donating the proceeds. Second, if itemized, you may claim a fair market value charitable deduction for the tax year in which the gift is made. You may choose to pass on the tax saving in the form of more giving as well.
- Traditional IRA Qualified Charitable Distribution (QCD) – The QCD allows a donor who is 70½ years of age or older to instruct their IRA administrator to send up to $105,000 to one or more operating charities (excluding donor-advised funds) tax-free in 2024. Withdrawals from QCDs are not taxable income like traditional IRAs and can satisfy some or all of the annual required minimum distributions (RMD). *Additionally, a one-time $53,000 QCD, within the $105,000 per individual limit, can be made to a charitable remainder trust or charitable gift annuity as part of the recently passed SECURE Act 2.0 legislation.
Situations You May Find Yourself in During Tax Season:
A stock in your portfolio goes way up and you find yourself wondering, “what should I do with it” and “what are my tax implications?”
- Let’s say you purchase 2,000 shares of a stock at $5 dollars per share. Since your time of purchase, the stock has appreciated $50 per share and is now an oversized position in your portfolio. This is where you can save by avoiding capital gains taxes through a charitable donation. By donating 1,000 shares -in this scenario- as a gift to charity you not only re-balance your portfolio but eliminate the capital gains taxes while increasing your charitable donation amount available for personal tax benefits. This increases the dollar amount available for charity versus the alternative of selling the 1,000 shares, increasing your capital gains taxes, and then gifting the remainder to a charitable cause.
You become subject to an RMD on your IRA and you do not need the income this year nor do you want to take the income because of the tax implications.
- Some or all of an individual’s traditional IRA RMD can be satisfied by charitable giving through a QCD. The qualified charitable distribution (QCD) can be donated to one or multiple charities and is nontaxable to individuals 70½ years of age or older. This example of using an IRA QCD allows an individual to take a standard deduction when filing income taxes plus an additional standard deduction because they are over the age of 65.
Let’s say you are considering converting a traditional IRA to a Roth IRA. You may be hesitating because of the income taxes that will be owed on the amount that is to be converted.
- An individual can offset corresponding income taxes associated with an unexpected increase in income -from a Roth IRA conversion, bonus compensation, inheritance moneys, or another event- by making a charitable donation in the necessary amount and claiming a deduction.
Whether you have found yourself in a situation like this or not, it is important to stay up to date with the ever-changing, yet omnipresent, tax landscape. Charitable giving is an effective area in mitigating personal taxes, taxable events, and your overall financial efficacy. Leveraging deduction limits, appreciated non-cash assets, and exploring options like the qualified charitable distribution (QCD), you can optimize your philanthropic impact while minimizing tax burdens. As such, it is important to have a team of trusted professionals to help educate and guide you on and through these complex scenarios.
Feel free to give us a call at (973) 554-1770, email us via myplan@greenridgeweal.wpenginepowered.com, or submit a message through our website.
Source: Five charitable planning ideas to share during tax season – Charles Schwab.
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