I’m not a CPA, nor do I want to be. I’m an investment adviser who doesn’t pretend to be a tax expert. But I do know that many retirees want to save on taxes and also help charities. Here are two methods:
Donate Stock – If you own stock with big long-term profits but don’t want to sell and pay the tax then consider donating all or part of the position to a charity. You’ll avoid a capital gains tax and if you pass that savings along to the charity then they’ll receive more than if you gave them cash.
Most people don’t itemize deductions. In fact, about 90 percent of taxpayers take advantage of today’s large standard deduction. For 2024 the standard deduction is $14,600 for single taxpayers and $29,200 for married taxpayers that file jointly. A gifted stock is tax deductible, but avoiding the capital gains tax makes this approach worthwhile even if you don’t itemize.
Qualified Charitable Distributions (QCD) – If you are over the age of 72 and have a traditional IRA, then you are required to take annual distributions. Those distributions are taxed as ordinary income. Instead of directly donating to a charity, a better method is a “qualified charitable distribution.” Under a QCD the account owner instructs the custodian to send the distribution directly from the IRA to the qualified charity. The donation counts toward the required minimum distribution but isn’t taxed as income.
Alternatively, you can pay tax on the IRA withdrawals and then write off the charitable donation, but as stated earlier most people don’t itemize. For most retirees, it’s best to do a QCD and take the standard deduction when filing taxes.
Qualified Charitable Distributions lower your reported taxable income, which in turn lowers your state taxes. That’s inconsequential in Nevada but in high tax states like California a QCD will lower state taxes.
Keep in mind the distribution needs to go to a qualified 501(c)3 charity. Sorry, it doesn’t work to send money to your beneficiaries.
It’s too late to donate stock or make a QCD for 2023 but taxes are on peoples’ mind now so plan now and act before year end. The two methods I’ve highlighted will reduce your tax burden and help your favorite charities. Best of all, charitable distributions can be made year after year. Consult a tax professional before making a donation.