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With regard to it regarding to it, Tax Cuts and Jobs Act as of 2017, there was a higher standard deduction, making it more difficult to claim charitable tax credits, said Christopher Hoyt, a law professor at the University of Missouri in Kansas City.
About 33% of taxpayers itemized deductions in 2017, compared to less than 10% in 2021, Hoyt said in the American Institute of Certified Public Accountants’ annual report. conference on Tuesday in Las Vegas.
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For 2023, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly, and there is no benefit from itemized deductions — including charitable donations, medical expenses and more — until the combined amount exceeds the standard deduction.
Given these limitations, investors can maximize tax breaks by “hoarding gifts,” Hoyt said. “Concentrate your donations into one year, don’t spread them over several.”
One of the popular ways to wrap gifts is the so-called donor fundwhich provides upfront tax relief while also acting as a charitable checking account for future donations.
Donor-advised funds have exploded since the 2017 tax law change, and more than 75% are less than five years old, according to Hoyt. But it’s unclear whether they’ll remain as popular once the enhanced standard deduction ends in 2026.
The best assets to donate to charity, including donor-advised funds, are usually profitable investments from a brokerage account because you can avoid capital gains taxes, resulting in a larger charitable donation.
Nearly 60% of contributions to Fidelity’s donor-funded fund in 2022 were non-cash assets such as stocks, and many chose to donate assets with built-in gains, organizations reported.
Once you’re 70½ or older, it’s usually better to donate funds from individual retirement accounts on a pre-tax basis, called qualified charitable distributions or QCD, Hoyt said.
You can donate up to $100,000 a year from your IRA before taxes, he said, and the “secret sauce” is that QCDs can satisfy your required minimum distribution.
“The big winners are donors who take the standard deduction,” Hoyt said, because QCDs don’t count as income, which can penalize seniors higher Medicare Part B and Part D of the premium.
To qualify, you must transfer the money directly from the IRA to an eligible charity and get certification from the organization that you received no benefit in the exchange, he said.