Everyone wants to give back in one way or another. After you’ve spent your whole life working, you may find that in retirement, you want to give some money to charity. But if you are living off of income streams from sources like your retirement accounts and Social Security, you may be worried about finding a way to make charity work for your financial picture.
Most retirees take the standard deduction on their taxes as opposed to choosing to itemize. But, as of the 2017 Tax Cuts and Jobs Act, the only way to benefit tax-wise from donations is to opt to itemize. So, how can you make this system work for you if you don’t usually itemize? There are a few strategies that can help.
First, consider bunching your donations. What that means is you’d donate an amount that qualifies you for deductions that exceed your standard deduction level in a given year. This way, you will benefit more from itemizing than taking the standard deduction. If that donation amount adds up to more than you normally would consider giving, then think of it as bunching the donations you would have made over the next few years into one year. The idea is that you are making charitable donations all in one year that you were thinking of making over time in order to gain the tax advantage. Of course, this means taking a break from donating in the following years.
Another option to consider is to set up a donor-advised fund. This will allow you to bunch your donations in a single year but then distribute them over a long period of time. The benefit to this is that you can still gain the tax advantage of a large, itemized donation but can distribute your donations over more than just one year.
The last strategy you might want to consider if you want to work donation into your financial picture is making gifts to your children, who then donate the money. This may allow your children to itemize their taxes and reduce their tax bracket beyond the standard deduction.
There are tips, best practices, and pitfalls for almost any financial strategy you consider. Even something as simple as giving money to people who need it can be a complicated process. If you’re looking for a guide to help you navigate these complexities, consider reaching out to one of our financial professionals today for a complimentary review of your situation.
This article is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not intended to provide specific legal or tax advice and cannot be used to avoid penalties or to promote, market, or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.