We are just two weeks away from Thanksgiving and then it is GivingTuesday. ‘Tis the season to give, collaborate, and celebrate generosity.
If you plan on donating money to charity, here are a couple of tips to increase the impact of your money.
Donate highly appreciated stock
When you donate highly appreciated stock to a qualified charity, you can avoid paying capital gains taxes on the appreciation. This can save you a significant amount of money, especially if you have a high tax rate.
Because you're not paying capital gains taxes on the donation, you can give more to the charity of your choice. For example, if you have $10,000 worth of stock that has appreciated to $20,000, and you donate it to charity, you can avoid paying $2,000 in capital gains taxes. This means that you can give the full $20,000 to the charity, without losing any money to taxes.
Make your RMD directly to charity
If you need to make a required minimum distribution (RMD) from your IRA account, making donations as a Qualified Charitable Distribution can be a smart choice.
Pros of QCDs
- Reduced taxable income: QCDs are excluded from your taxable income, which can lower your overall tax bill. This is especially beneficial for retirees who are required to take minimum distributions (RMDs) from their IRAs, as they can use their RMD to make a QCD to charity and avoid paying taxes on the distribution.
- No itemization required: Unlike other charitable donations, QCDs do not require you to itemize your deductions on your tax return. This means that you can benefit from making a QCD even if you take the standard deduction.
- Flexibility: You can make a QCD from a traditional IRA, SEP IRA, or SIMPLE IRA. You can also make multiple QCDs throughout the year, as long as the total amount does not exceed your RMD limit.
Limitations of QCDs
- Income limits: QCDs are only available to taxpayers who are age 70½ or older.
- Annual limit: The maximum annual amount that can qualify for a QCD is $100,000.
- QCDs cannot be made to donor-advised fund sponsors, private foundations and supporting organizations, though these are categorized as charities. NOTE: Donors should check before making a gift to ensure the organization is qualified to accept QCDs.
We hope these tips help maximize your impact this GivingTuesday and have a wonderful Thanksgiving!
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