Here’s how to maximize your tax breaks for charitable giving

As year-end approaches, you may be eyeing a donation to charity — and certain gifting strategies can boost your tax break, experts say.  

In 2023, U.S. charitable giving hit $557.16 billion, up roughly 2% compared to 2022, according to Indiana University Lilly Family School of Philanthropy’s annual report released in June. U.S. donations totaled $3.1 billion for Giving Tuesday 2023, GivingTuesday Data Commons estimated.

“This is the time of year when charitable gifting takes center stage” and most want to maximize their impact, said certified financial planner Paula Nangle, president and senior wealth advisor at Marshall Financial Group in Doylestown, Pennsylvania.

Here’s what to know about charitable tax breaks before swiping your credit card or transferring funds, according to financial advisors.

When filing taxes, you claim the standard deduction or your total itemized deductions, whichever is bigger. The latter includes a tax break for charitable gifts, medical expenses and state and local taxes, or SALT, among others.

Enacted by President-elect Donald Trump, the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction and capped SALT at $10,000 through 2025.

Those changes make it harder to itemize, Nangle explained.

For 2024, the standard deduction is $14,600 for single taxpayers and $29,200 for married couples filing together. Roughly 90% of filers used the standard deduction in 2021, according to the latest IRS data. 

Still, there are tax strategies to exceed or bypass the standard deduction, experts say. 

If you’re age 70½ or older with savings in a pretax individual retirement account, a so-called qualified charitable distribution, or QCD, “almost always has the highest tax advantage,” said Sandi Weaver, a CFP and certified public accountant at Weaver Financial in Mission, Kansas.

QCDs are a direct transfer from an IRA to an eligible nonprofit, limited to $105,000 per individual in 2024, up from $100,000 in previous years.

There’s no charitable deduction, but the transfer won’t increase your adjusted gross income, or AGI, Weaver explained. Higher AGI can impact income-related monthly adjustment amounts, or IRMAA, for Medicare Part B and Part D premiums.  

Plus, you can satisfy yearly required minimum distributions, or RMDs, with a QCD, according to the IRS. Since 2023, most retirees must take RMDs from pretax retirement accounts at age 73.

“Bottom line: The QCD is a no-brainer,” said CFP Juan Ros, a partner at Forum Financial Management in Thousand Oaks, California.

If your itemized tax breaks don’t exceed the standard deduction, you can consider “bunching multiple years of contributions” into a single year, Nangle said.

One popular bunching strategy involves opening a so-called donor-advised fund, an investment account that functions like a charitable checkbook, with flexibility for future gifts to nonprofits. Donors get an upfront deduction on transferred assets.

Appreciated stock is a “great asset for funding a donor-advised fund,” because the donor gets a tax break, and “any capital gain is forever avoided,” Ros said.