By Paul S. McNulty, CFP®
There are a lot of people who are struggling right now due to COVID-19, none so much as organizations that rely on generous donations from their supporters to keep their doors open and continue carrying out their mission. Whether you’ve been giving to charities or other organizations for years or want to do your part to help those in need right now, did you know you can give in a way that benefits both you and the recipient? It’s a win-win!
Here are three ways you can maximize your charitable giving.
Discover All The Ways To Give
Writing a check is a great way to support your favorite charity. However, there are other ways to give that could maximize your generosity.
Donor-Advised Funds (DAFs)
Donor-advised funds (DAF) are charitable giving programs that allow you to combine the tax benefits of giving with the flexibility to support your favorite charities.
Contributions to your DAF can provide a current year’s tax deduction, then be invested to grow tax-free. This may result in more dollars for the organizations you support when you decide to transfer the assets. The funds allow you to contribute appreciated securities and non-cash assets that can help to further lower your tax bill.
Gifting Your RMD
A simple example that takes advantage of tax benefits and minimizes your taxable income involves the required minimum distributions (RMDs) you are required by law to withdraw from your retirement accounts when you turn 72. But what if you don’t need that money for living expenses? Current tax law allows you to gift your RMD directly to a charity and avoid paying taxes on the distribution.
Qualified Charitable Distributions
If you own an IRA, you can use a qualified charitable distribution (QCD) to receive a tax benefit for your charitable giving, even if you take the standard deduction. A QCD is a distribution made from your IRA account directly to your charity of choice. It can count toward your required minimum distribution (RMD) for the year and it does not count toward taxable income. As such, you don’t have to pay any taxes on it.
All of your charitable contributions can be filed with your taxes, qualifying you for certain tax deductions and reducing your overall tax bill. Make sure to always ask for a receipt any time you give a donation (cash or non-cash) and file it away in a designated spot in your house where you will never lose it. Once tax season is here, bring your receipts and your paperwork to your CPA so you can get an accurate picture as to which tax deductions you qualify for. Always include a copy of your receipts with your tax forms as proof.
Know Your Deductions
It is important to determine which is more advantageous for you: claiming the standard deduction or going for the itemized deduction. For 2020, the standard deduction is $12,400 for singles, $18,650 for heads of household, and $24,800 for couples filing jointly. (1) If you know your mortgage interest, property taxes, and charitable contributions will exceed your standard deduction, it is advisable to opt for the itemized deductions instead. This is where you would get the opportunity to list all of these items in detail, but beware, you will need to have statements and receipts on hand to prove that your numbers are correct. However, if you know your itemized deduction list would be less than the standard deduction, then it would be more beneficial to just claim the standard deduction.
Go A Little Further
Depending on the current state of your financial portfolio, there may be other ways to maximize your charitable contributions even more. We at Boston Metro Advisor would be more than happy to take a look at your situation and see how we can maximize your money. Contact us for a complimentary consultation by calling (781) 995-0253 or email me directly at [email protected] today!
Paul McNulty is the founder of Boston Metro Advisor with over 20 years of experience helping people navigate the ups and downs of the economy toward the financial future they envision. His education consists of a Bachelor of Science in business administration from the University of Rhode Island and the CERTIFIED FINANCIAL PLANNER™ (CFP®) professional designation.
Paul’s experience and education have made him a multi-faceted professional capable of assisting people with virtually all their financial needs. His services include every facet of retirement planning, from 401(k) rollover services and income planning to wealth management and estate planning. Paul has been active in his community over the years as a youth sports coach. When he’s not spending time with his wife, Cindy, and their two children, who are both recent college graduates, Paul enjoys reading, playing golf, and fishing. Learn more about Paul by connecting with him on LinkedIn.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.