As you and your family cultivate a lifestyle of generosity, you may want to gain a deeper understanding of giving-related tax strategies that can help your charitable contributions reach as far as possible. Create your 2023 giving plan. Build your strategy based on the 2023 standard deduction, charitable contribution limits, IRA charitable contribution rules, and more. After all, good stewardship includes even the ways we fill out our tax forms.
Charitable Contribution Limits: How much giving is deductible?
Tax benefits for charitable contributions: Current tax law offers charitable deductions to donors who itemize taxes and contribute cash or appreciated non-cash assets (make sure to hold them for more than a year before donating). So, what is the charitable contribution limit in 2023?
The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022.
The charitable contribution limit for a gift of cash to a public charity or donor advised fund remains 60% of one’s adjusted gross income (AGI). Donors may claim a tax deduction for non-cash asset gifts to qualified public charities and donor advised funds up to 30% of their AGI. Donation amounts in excess of these limits may be carried over for up to five tax years.
Should You Itemize? 2023 Standard Deduction
The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700, up from $25,900 the prior year.
For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up from $12,950 the prior year.
And for heads of household, the standard deduction will be $20,800 for tax year 2023, up from $19,400 for tax year 2022.
Giving More in 2023
Stocks and Charitable Giving
- Appreciated stocks donated to a donor advised fund before they are sold do not affect the donor’s capital gains taxes. Donating appreciated stocks before they sell is another strategy to minimize tax burden and maximize generosity. Learn more here.
Give Appreciated Non-cash Assets Instead of Cash
- For those who itemize deductions, giving capital assets such as stock, cryptocurrency, real estate, or business interest to a donor advised fund may maximize your generosity and minimize taxes. Beyond claiming a deduction for the fair market value of an asset, donors can avoid the capital gains tax they would otherwise incur if they sold the asset and then donated the cash proceeds. This can mean even more going to charity and less to taxes.
Leverage Deduction Rules or a Bunching Strategy
- Bunch contributions. You may find that the total of your itemized deductions for 2023 will be slightly below the level of the standard deduction. If so, it could be beneficial to bunch 2023 and 2024 charitable contributions this year by donating two years’ worth of your planned contributions to a donor advised fund. This can allow you to itemize deductions on 2023 taxes and take the standard deduction on 2024 taxes. In addition to achieving a large charitable impact now, this strategy could produce a greater total deduction across the two years, depending on your contribution amounts and filing status. With a donor advised fund, you can recommend a schedule of gifts to go out across the two years and add any additional amounts from the itemized 2023 return as bonus gifts to charities.
Consider Retirement Assets
- Make a Qualified Charitable Distribution (QCD) of IRA assets. Individuals age 70½ and older can direct up to $100,000 per year, tax-free, from their Individual Retirement Accounts (IRAs) to operating charities through qualified charitable distributions (QCDs). A QCD satisfies your RMD requirement for the year, and by reducing your IRA balance, a QCD may also reduce your required minimum distribution (RMD) in future years, lower your taxable estate, and limit your beneficiaries’ tax liability. A donor advised fund is not an eligible recipient of a QCD—a distribution from your IRA to a DAF will not be tax-free. The Signatry offers other giving methods that may receive a QCD, including designated funds. Grants from a designated fund can only be sent to a single charity. Learn more here.
Optimize your Charitable Deductions with Charitable Bunching
Taxpayers donating to charities yearly, yet find themselves below the standard deduction threshold should consider charitable bunching.Learn More