Charitable Donations

There are a number of tax-related items you should keep in mind regarding charitable donations.

The most important thing is: Keep adequate records. The IRS requires proper documentation for charitable deductions.

Donating Stocks
There are multiple avenues an individual can use for charitable donations that can maximize the tax benefit. If you are considering making a charitable donation with stock investments, it is better to transfer the appreciated investment to the charitable organization instead of selling the investment and giving the organization the proceeds. Donating the stock directly prevents you from having to pay capital gains on the stock sold.  Additionally, in most cases, you can deduct the fair value of the stock on the date the stock was donated. 

Qualified Charitable Distributions
Another tax strategy for retirees with traditional IRAs is donating to charities using a qualified charitable distribution (QCD) tax strategy.  QCD’s can help offset the individual’s tax bill from required minimum distributions. Depending on your lifestyle will determine whether you need additional money from your IRA.  In some instances, the individual does not need the additional income.  However, the IRS requires individuals to start taking annual distributions from their tax-deferred retirement accounts at age 72 (age 70 ½ prior to January 1, 2020). These distributions are known as Required Minimum Distributions (RMD’s).  RMD’s are subject to ordinary income taxes and can push you into a higher tax bracket depending on other factors.  This can also have an adverse effect on social security income and Medicare benefits.  You can direct your IRA administrator to directly distribute your RMD to a charitable organization.  Because the IRA income goes directly to the charitable organization you do not report the QCD as taxable income on your tax return and do not owe any taxes on the QCD.  The maximum allowed QCD per year is $100,000.  By working with your financial advisors, they can help reduce the individual’s Requirement Minimum Distribution and tax liability.