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Donating to Charity but Miss the Deductions? Check Out These 3 Solutions! Thumbnail

Donating to Charity but Miss the Deductions? Check Out These 3 Solutions!


Hi guys Mike Frontera here back with another Retirement Theory video. Do you have a charity that you're passionate about? A group that does really good work and has a special place in your heart? I'm sure a lot of us do and many of us like to show our love to our particular charity through donating. Giving is such an integral part of our humanity and our  society. I mean in this country our government encourages charitable giving by extending tax breaks to us when we do so. Most notably of course is the tax break that you can generally deduct from your income the value of your donations to qualified nonprofit organizations or 501c3 groups.

How Do Claim Your Write-Offs?

Now one slight wrinkle to that is that you do need to already be itemizing your deductions in order to claim the charitable write-off. Well that slight wrinkle has turned into a full-on Sharpei dog with the roughly doubling of the standard deduction through the tax cut and jobs act that went into effect in 2018. So whereas in 2017 married couples could itemize once they exceed the standard deduction of twelve thousand seven hundred dollars or sixty three fifty if you file as an individual. Then 2018 came and pushed that standard deduction up to twenty four thousand or twelve thousand for individuals. And of course that's going up again in 2019 and if you are married and you're both 65 years old your standard deduction is up to twenty seven thousand that's a huge hurdle to cross in order to receive any tax benefits from your itemized deductions including charitable deductions unfortunately this removes the tax incentive for a great number of charitably inclined people. Well I want to help you get some of those tax benefits back and I'm gonna give you three smart ways to donate that can not only help the charity you love but may get some tax dollars back in your pocket.

Okay let's check them out. So the first is known as bunching contributions. And bunching contributions is quite simply putting two or more years of donations together and giving larger amounts less frequently. So for example if you file as an individual and you give $12,000 every year to the Red Cross assuming you had no other deductions you'd always be just under the current standard deduction and thus would see no tax benefits from your contributions. If instead however you kept your $12,000 each year and after four years donated $48,000 you could itemize the $48,000 charitable deduction that year and depending on your tax bracket could receive more than an extra ten thousand dollars off your taxes. Now a caveat. This does assume that the donation doesn't exceed 60% of your adjusted gross income which is the annual limit for cash gifts.

"But Mike, I love giving to my charity every year." Well, you still can work a bunching technique by setting up something called a donor advised fund. A donor advised fund is just an investment account whereby you contribute a sum of money invest it and parse it out as you see fit to your favorite 501c3 organization. And you get immediate credit for any contributions made to the fund. So going back to the last example in this case we start with $48,000 and we contribute that money to a donor advised fund and now we can immediately itemize deductions this year so with the 48,000 now in the donor advised fund we can choose when and how much to actually grant that money out to the charity of our choice. We can grant out $12,000 each year to the Red Cross if we'd like or mix it up. Maybe there are other charities that we'd like to benefit or maybe we want to give more one year and less another year. That's all under our control. Meanwhile we've gotten a nice tax break for putting the money into the donor advised fund either way.

Qualified Charitable Distribution

Okay,  the next strategy is for those of us who are ready to receive our required minimum distributions from our IRA accounts. So, for this one you must be 70 and a half years old and

it's called a qualified charitable distribution or QCD. With a QCD you can give up to $100,000 every year to the 501c3 organization of choice directly from your IRA accounts. These QCDs can lower your minimum required distribution and of course the income tax associated with them. And rather than having itemized taxes to see a benefit, a QCD

comes right off your adjusted gross income whether you take the standard deduction or not. Better yet a number of items like taxation on Social Security, premiums on Medicare, some states' property taxes are based off of your adjusted gross income and a QCD can help reduce that. That's something that even itemizing deductions wouldn't help. Now be careful executing this strategy without any guidance. The rules are very particular about how a QCD must be taken in order to properly qualify. The main thing is to keep in mind that the distribution from the IRA must be paid directly to the charity you choose. Ok now you might be sitting there thinking I'm not 70 and a half years old and I can't donate enough to make the first strategy work either, so thanks Mike but this has been a bust. Well hang on we have one more strategy to look at.

That is direct donation of investments to charity. More specifically donation of investments that have appreciated and have embedded capital gains. Donating this rather than making a cash donation is extra nice because you don't need to itemize nor be seventy and a half to get a tax break. Okay so to explain let's look at another example. So, let's say you have some facespace stock, it's fake stock and want to make a charitable donation. You paid five thousand dollars for the stock but now it's worth eleven thousand. Well if you cash the stock in you know capital gains taxes on the growth of that stock or six thousand dollars. If you donated the stock itself however to a charity you avoid those capital gain taxes completely and the charity can sell the stock tax-free since they're a non-profit organization. And while the donation may not be large enough for you to itemize your deductions you've still saved taxes by avoiding the capital gains on that appreciated stock. Remember no one ever said you must first pay tax on your investments before donating.

Keep in mind on this one that if you are itemizing and giving appreciated stock, your deduction is limited to 30% of your adjusted gross income. But you may be able to carry over any unused deduction for up to five years.

So do you have questions for me? Let me know. Give me a call at (518) 469-8152 or just visit me at www.retirementtheory.com. Do you follow me on Facebook? I think that you should. You'll see videos like these and get blog and article shares on everything retirement planning. Once again thank you for joining me. See you next time.

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Registered Representatives of Cambridge Investment Research, Inc. do not offer tax or legal advice.  For advice concerning your own situation, please consult with your appropriate professional advisor. 

This information is for illustrative purposes only, and is not intended as tax or legal advice.  Please consult with your Attorney or Accountant prior to acting upon any of the information presented. 


  1. https://www.forbes.com/sites/kellyphillipserb/2016/10/25/irs-announces-2017-tax-rates-standard-deductions-exemption-amounts-and-more/#48093bc75701
  2. https://www.forbes.com/sites/kellyphillipserb/2018/03/07/new-irs-announces-2018-tax-rates-standard-deductions-exemption-amounts-and-more/#6659b1b23133
  3. https://www.forbes.com/sites/kellyphillipserb/2018/11/15/irs-announces-2019-tax-rates-standard-deduction-amounts-and-more/#344a1e5e2081
  4. https://www.fidelitycharitable.org/philanthropy/what-is-a-donor-advised-fund.shtml
  5. https://www.kiplinger.com/article/taxes/T055-C032-S014-10-things-anyone-considering-a-qdc-should-know.html
  6. https://www.forbes.com/sites/brucebrumberg/2018/11/26/making-charitable-donations-of-stock-instead-of-cash-after-tax-reform/#555c9e9cb3a4

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