Last week, Garry introduced our fourth quarter blog series where we will cover various strategies for accomplishing charitable giving goals. At Master’s, we believe in heartfelt generosity rather than treating giving solely as a tax planning tool. However, integrating tax strategies can help us fulfill our charitable goals more efficiently. Let’s dive into the first strategy: cash giving.
Cash giving is a familiar method, but there are ways to optimize it for enhanced income tax benefits. The first strategy we will cover is one that many retirees are familiar with: Qualified Charitable Distributions (QCDs). Once tax-deferred retirement account owners reach the age of 70.5, they become eligible to use this strategy. First off, despite the many changes to the required minimum distribution age over the last few years, the starting age for eligibility to utilize QCDs has remained at age 70.5. The concept is simple: instead of taking a required minimum distribution from a tax-deferred retirement account, paying tax on the distribution, and giving the proceeds to charity, a QCD involves the retirement account owner providing instructions for the custodian to send the dollar amount they wish to give directly from the retirement account to the qualified charity. The amount is counted towards the retirement account owner’s required minimum distribution amount and is not included in their taxable income! For those that qualify, this is a very effective and efficient charitable giving strategy.
The second cash giving strategy we will cover today is called Charitable Chunking. According to IRS data from the 2020 tax year, approximately 11% of tax filers itemized their tax deductions. This means that most people who give charitably do not see a tax advantage for doing so. This is where Charitable Chunking comes in: instead of giving your desired amount to charity annually and always taking the standard deduction, charitable chunking involves “chunking” two or more years’ worth of charitable giving into one tax year. Doing so will often permit a tax filer to itemize their deductions for that tax year and take the standard deduction during the “off years”. The result is a net reduction in a taxpayer’s lifetime tax bill. Furthermore, when paired with a Donor-Advised Fund (which we will cover in detail in three weeks), this strategy can be very beneficial!
If either of these cash giving strategies has triggered questions in your mind, please feel free to reach out to us! The Master’s team considers it a privilege to help you fulfill your charitable giving goals while taking advantage of the tax strategies that are available along the way!