Tax and finance experts share ways to donate to charities and reduce tax bills ahead of Giving Tuesday on November 28.
In 2022, Americans gave nearly $500 billion, with the majority ($319 billion) coming from individual donations. Although there was a slight decline from the previous year, it still reflects a significant amount of money.
As the year comes to a close, it’s important to consider taxes and strategies for minimizing tax payments.
One effective approach is charitable giving. According to tax and financial advisors, there are various options to support your favorite charities while also lowering your tax liability.
Qualified Charitable Distribution
Qualified Charitable Distribution: Individuals who are 72 years old and above are required to start withdrawing money from their retirement accounts, known as RMD. These withdrawals are treated as ordinary income and can potentially increase taxes or push individuals into a higher tax bracket.
However, those who don’t need the money can opt to have the RMD directly donated to a charity of their choice. This allows individuals over 70 ½ to donate up to $100,000 from their IRAs to a 501 C charity, without incurring income taxes on the distribution.
The Secure Act 2.0 also permits individuals over 70½ to make a one-time $50,000 donation to a charitable remainder trust or charitable annuity without being taxed on the distribution, provided that the IRA owner is 73 or older.
Donor Advised Fund
Donor Advised Fund: A Donor Advised Fund allows individuals to contribute and receive a deduction, then utilize the fund for charitable donations over multiple years. It offers flexibility in managing donations and maximizing tax benefits.
By donating highly appreciated property, such as a second home or stocks, individuals can create additional tax benefits while supporting charitable causes.
Charitable Remainder Trust
Charitable Remainder Trust: Using highly appreciated property, like real estate, can be placed in a trust, providing benefits during the donor’s lifetime with the remainder benefiting the charity upon their passing.
Highly Appreciated Stocks
Highly Appreciated Stocks: Donating highly appreciated stocks to a charity allows individuals to avoid paying capital gains taxes, providing a tax-efficient way to support charitable organizations.
If you’re considering a gift to Senior Planet, learn more about your options here and here.
Rodney A. Brooks is the former deputy managing editor/Money at USA TODAY. His retirement columns appear in U.S. News & World Report and Senior Planet.com. He has written for National Geographic, The Washington Post and USA TODAY. The author of “Fixing the Racial Wealth Gap,” Brooks has testified before the U.S. Senate Special Committee on Aging. Learn more about him.
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