Make Your Charitable Donations Count

This week, I’m going to share a bit of tax strategy as it relates to your charitable giving and since most of you are charitably inclined, we want to make sure you’re making the most of your giving!

First off, and you’ve probably heard me say this before, but you have to want to give money to charity because YOU WANT TO GIVE MONEY TO CHARITY. Your primary motivation needs to be because you care about the cause/organization that you are supporting and it feeds your soul…and not because of the tax benefits! You will never come out “on top” giving away $1 and getting back 30 cents in tax savings…you are still giving away money! (You might be surprised how often this comes up.)

Now, with that said, there ways of making your charitable giving count MORE under the tax code.  I like to call it “lumpy” charitable giving.  

I’ll use real numbers to explain how this works.

Let’s say you want to give $10k each year to charity, and that even before you donate, you have $19,700 of itemized expenses (coming from mortgage interest taxes, state taxes etc.). We’ll assume, for this example, that your married & filing jointly which means that your standard deduction will come out to $27,700 in 2023. (As a brief tax explainer: taxpayers can choose to take either the standard deduction or their itemized deductions…whichever is higher. Then when calculating your taxes, this amount is excluded from your taxable income.)

So, prior to you donating money this year, you would have taken the standard deduction (because you’d rather deduct $27,700 than $19,700) making your first $27,700 of 2023 income tax deductible…good deal. If, however, you do make this $10,000 gift to charity, your itemized deductions would go up to $29,700, obviously higher than the standard deduction, and so you would claim this higher amount on your taxes…even cooler!

Except this strategy would mean that only $2,000 of that charitable deduction is truly deductible… because you already were benefiting from the $27,700 standard deduction in the first place! Put another way, if you had not donated anything, you would have benefited anyway from the first $27,700 of deductions (via the standard deduction)…So your $10,000 charitable gift only resulted in $2,000 of additional tax deductions (and even less in actual tax savings.) $8,000 was eaten up by the standard deduction.

Let’s say we mapped this out more efficiently, and decided, instead, to make a $20,000 deduction every OTHER year…so you’re giving the same amount of money to charity over time, just in a different cadence.

In this example, in year 1, you would have had $39,700 of itemized deductions ($19,700 you already had plus $20,000 in charitable giving). This means that you can now deduct $39,700 instead of the $27,700 resulting from the standard deduction. That’s an extra $12k of tax deductions! So, working backwards, that means $12k of your $20k charitable gift was tax deductible.

Again, in the first example, If you donated $10k evenly over the two years, only $4,000 total would have been tax deductible ($2,000 each year as we explained above.)

That’s $8,000 of additional tax deductions just because you got “lumpy” with your charitable giving! (And this is just one example, we could spread the donations out further, we could have used a Donor Advised Fund if we were donating a substantial amount etc.

The point…it ALWAYS help to be intentional with your planning…and that’s what we’re here for.

If you need some help putting this all together…. book your 15 minute Right Fit Call.

Happy planning!