Maximizing Your Tax Deduction for Charitable Gifts: Advice from Financial Advisors

This holiday season, you may be able to lower your taxes while supporting your favorite charity, experts say. By donating to a qualified charity, you can deduct the amount of your donation from your taxable income. This can help you lower your overall tax bill and support a cause that is important to you.

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A recent study by Edward Jones found that despite the shaky economy, most Americans plan to donate similar amounts this year as they did last year. Although tax breaks are not usually the primary motivation for giving, experts say that some donors may be missing out on the opportunity for a deduction. According to Personal Finance, the "Secure 2.0" provision is included in the spending bill, putting it on track to become law. This provision would help retirees with unpaid quarterly taxes. Social Security benefits are expected to fall short by 46% in 2022, so this provision could provide some much-needed relief for retirees.

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"If you don't donate enough to itemize, you won't get any tax benefits for your donations," said Jeremy Finger, certified financial planner and founder of Riverbend Wealth Management in Myrtle Beach, South Carolina.

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When it comes to charitable giving, there are a few things you should keep in mind. Financial advisors typically recommend two of the best ways to give charitably. First, you should know that you may be able to deduct your charitable donations on your taxes. This deduction can be a great way to reduce your overall tax bill. Second, when you're choosing a charity to donate to, make sure you do your research. There are a lot of great charities out there, but some are more efficient with their donations than others. Make sure you choose a charity that will make good use of your donation.

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When you file your return, you can reduce your taxable income by subtracting either the standard deduction or your total itemized deductions. Your itemized deductions may include charitable donations. The 2017 tax overhaul, signed by former President Donald Trump, nearly doubled the standard deduction. This made it less likely for filers to itemize their deductions. For the 2022 tax year, the standard deduction is $12,950 for single filers or $25,900 for married couples filing together. If you take the standard deduction, you cannot claim an itemized deduction for charitable gifts.

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If you're looking to itemize deductions, the type of asset you donate will affect your charitable write-off.
Juan Ros, a CFP at Forum Financial Management in Thousand Oaks, California, said that investments that are profitable in a taxable brokerage account are typically the best type of asset to give.

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Donating an appreciated asset can be a great way to get a charitable deduction while avoiding capital gains taxes, according to experts.
Before making a noncash donation to your preferred charity, be sure to confirm that they are able to accept such donations. With many portfolios down 15% to 25% for the year, it may be tempting to sell stocks that have declined in value. However, it may be better to donate the cash proceeds to charity, Ros said. By doing so, you can harvest the losses and potentially help out a worthy cause.

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According to Mitchell Kraus, a CFP and owner of Capital Intelligence Associates in Santa Monica, California, if you're 70½ or older, donating directly from a traditional individual retirement account is usually the best way to give.

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The "qualified charitable distribution" (QCD) strategy allows you to make a direct transfer from your IRA to an eligible charity. You can give up to $100,000 per year, and the amount may count towards your required minimum distribution if you make the transfer at age 72.
According to Kraus, even if you don't itemize deductions, you'll still get a tax break from donations since they don't show up as income. Reducing your adjusted gross income can also help avoid triggering other tax issues, such as higher Medicare Part B and Part D premiums.