Charitable Tax Deductions

How to make the most of your charitable tax deductions (updated)

Updated December 5, 2017

When you think about why you give, it all comes down to one thing—to make a difference. That’s why you should think about tax-smart donation strategies. They don’t just save you money on your taxes; they could also help maximize your charitable impact with a bigger donation. Here are a few quick tips to get you started.

Get smart with securities.

Before you get out that handy checkbook to send in your donation, take a look at your investment portfolio. If you have long-term appreciated securities (held more than one year), it might make sense to donate those directly to the charity instead of giving cash. And with the Dow Jones Industrial Average up significantly since 2012, now might be a good time to take advantage of this option. Here’s why.

Let’s say a hypothetical couple, Joan and Mark, invested $6,000 in securities and earned $4,000 in capital gains, which were reinvested. They now want to use this money to make a generous gift to their favorite charity. They could sell their securities and write a check, but after crunching the numbers, they see their securities, now valued at $10,000, is more effective when given directly to the charity.

Instead of paying $752 in capital gains tax (assuming a 33% federal income tax bracket), the charity is exempt and pays $0. Plus, Joan and Mark get an income tax deduction based on the full fair market value of the securities, increasing their deduction by $248.

In the end, it’s a win-win. Joan and Mark get a bigger tax break and their favorite charity gets a bigger gift.

Joan and Mark's appreciated securities donation example

Stay Ahead of Tax Reform.

Concerned how tax reform will impact you? Consider funding your charitable future today. Tax reform includes provisions that would:

  • Increase the standard deduction
  • Eliminate the deduction for state and local taxes
  • Consolidate the current seven tax brackets into four

So, even though the charitable tax deduction would remain intact, these changes could result in many taxpayers doing better “tax-wise” by taking the standard deduction instead of itemizing their deductions. Those that do will lose the tax benefit of charitable deductions. With uncertainty over specifics and timing, many taxpayers are left wondering what these changes will mean for them.

If you fund your charitable future today, you may be eligible to take a tax deduction this year under the current tax code. And, you can use the contributions to support charitable grants during the remainder of 2017, and beyond. Plus, while you’re considering your charitable options, money in your donor-advised fund will be invested tax-free—and will have the potential to grow, along with your charitable impact.

Get flexibility with a donor-advised fund.

A donor-advised fund is like a personal fund dedicated to your charitable giving. You donate money to the fund and may be eligible for an immediate tax deduction. Your contribution is invested and then you can recommend grants to as many 501(c)(3) public charities as you like—on a time frame that works for you. Maybe you want to build your contributions to make a larger gift to a capital campaign at your alma mater in a few years. Or maybe you want to make monthly grant recommendations to several charities now. A donor-advised fund gives you that flexibility.

If you decide not to make grants right away, any investment growth is tax-free and can help you make more or larger grant recommendations to your favorite charities.

Plus, with a donor-advised fund, you consolidate all your giving and recordkeeping in one place. And, at the end of the year, you receive a single statement listing all your charitable grants. There’s no hunting for receipts during tax time. All the work is done for you.

In a position to consider giving the maximum? Here are more strategies.

Tax law currently offers the opportunity to deduct contributions to a donor-advised fund of up to 50% of your adjusted gross income (AGI) for cash gifts or up to 30% for gifts of long-term appreciated securities. If your giving approaches these totals this year, there are additional ways to maximize the tax benefits of charitable giving. 

Give cash and securities. Take advantage of the tax benefits of giving long-term appreciated securities by considering donating up to the maximum 30% of your AGI. Then, consider supplementing the appreciated securities with a gift of cash and qualify for a larger tax deduction. Just make sure your combined cash and securities donations do not exceed 50% of your AGI.

Make a larger gift—and carry the deduction forward. If a bonus, inheritance or other unusual event resulted in a dramatic increase in your income this year, under current law you can give more than the IRS limit and use any ”excess” deduction to offset income (up to the limits mentioned previously) for as long as five years. You may still get the full benefit but over a multi-year period. Consult your tax advisor to see if this strategy is appropriate for your situation. 

Donate your IRA distribution to charity. If you’re 70½ or older and have an IRA, you can donate your required minimum distribution (RMD)—up to $100,000 per year—directly to charity. And, because it goes straight to charity, the RMD amount is not included in your taxable income.

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Charitable Tax Deductions

Your Giving Fund can help you be more strategic about taxes. Not only can it make things a lot easier come tax season, you may be eligible for charitable tax deductions and benefits that can help both you and, ultimately, the charities your Giving Fund support.

Learn more about tax benefits

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Contributions to the Giving Fund are irrevocable. All recommendations from donors are subject to review and approval by TIAA Charitable.

TIAA Charitable does not provide tax advice. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.

TIAA Charitable is the brand name for an independent public charity that maintains a donor-advised fund program. The TIAA name is a registered mark of Teachers Insurance and Annuity Association of America and is used by TIAA Charitable pursuant to a license.

TIAA Charitable, Inc. has been recognized by the Internal Revenue Service as a tax-exempt public charity under Sections 501(c)(3) and 170(b)(1)(A)(vi) of the Internal Revenue Code of 1986, as amended (the “Code”).