Bring in the New Year with New Giving Strategies

By Aaron Hill, BFG Financial Advisor

As the new year begins, it’s a great time to reflect on your personal and financial goals. Have you been dreaming of any new resolutions? Have you thought about charitable giving being one of them? 

Giving back can provide the joy of helping others AND offer financial benefits in return. By utilizing different strategies depending on your circumstances, you can enhance the value of your charitable giving, all while keeping your focus on making a difference.

Looking ahead—and looking back: Taxes & Giving

The Tax Cuts and Jobs Act of 2017 had wide-reaching implications. Pre-2017, it was much more common to itemize tax deductions and include charitable giving as a deduction, but this tax reform essentially doubled the standard deduction and now many charitable gifts don’t receive any specific tax benefit. This doesn’t necessarily have to be the case.

Qualified Charitable Distributions (QCDs)

For individuals nearing or in their 70s wondering how to be more effective givers, a great option is a Qualified Charitable Distribution (QCD). QCDs allow IRA owners aged 70½ or older to donate directly from their individual retirement account (IRA) to a qualified charity. 

Instead of worrying about whether or not you’ll itemize your tax deductions, QCDs are simply not included in taxable income and can be a tax-advantaged way to support causes you care about! They allow you to reduce your taxable income, maximize your giving, and make a meaningful difference.

For individuals aged 73 or older, QCDs can also satisfy part or all of their Required Minimum Distribution (RMD) for the year without having to pay taxes on their distribution!

“So how do QCDs work?”

Good news! We can help you every step of the way and can start any time during 2025. QCDs are sent directly from your IRA to the charitable organization you support. While QCDs are not taxed, they also cannot be claimed as itemized deductions.

• QCDs are sent directly from your IRA to the charitable organization you support.
   
• While QCDs are not taxed, they also cannot be claimed as itemized deductions.
   
• To claim the QCD on your tax return, report the total IRA distribution from Form 1099-R on Line 4a of Form 1040 or 1040-SR, and the taxable amount (if any) on Line 4b. Write “QCD” next to Line 4b. To qualify as a QCD, written acknowledgment from the charity confirming the date and amount of the contribution and stating that no goods or services were provided in return is required.

“What if QCDs don’t fit our financial picture?”

No IRA? Not 70 ½ years old? Are you regularly generous? Maybe “bunching” is right for you. Donation bunching is a multi-year strategy that requires careful planning and timing.

The bunching strategy has gained importance since the Tax Cuts and Jobs Act of 2017.

If your itemized deductions don’t exceed the standard deduction, your charitable giving won’t provide a tax benefit—though you’ll still receive the standard deduction. Bunching two or more years of charitable donations into a single year can help push your itemized deductions above the standard deduction threshold, reducing your taxable income and lowering the amount of taxes you owe.

For example, in a standard deduction year, delay end-of-year donations until January of the following tax year. Then make two years’ worth of giving in one calendar year.

What if you want to “bunch” but prefer giving on an ongoing basis? Or what if you have a large cash balance and want to give going forward? Maybe you sold a business or have stock that’s highly appreciated but you see large capital gains taxation in your future? A donor-advised fund (DAF) can help, and just like QCDs, we can help you every step of the way.

With a DAF, you can contribute a lump sum of cash or investments to the fund—qualifying the entire balance for a tax deduction in the current year that the funds are contributed —while distributing the donations to charities whenever you choose in the future.

Donations to the account provide immediate tax benefits, making it an excellent complement to the bunching strategy.

“Why should I donate my stock that’s grown in value?”

Donating appreciated stock can be significantly more valuable than selling stock and making a cash donation. A stock that has appreciated for more than a year that is donated directly to charity requires no capital gains payment.

Plus, you are still eligible to deduct the full fair-market value of the asset you donated from your income taxes, up to the overall amount allowed by the IRS.

“So, what’s this mean for me?”

The new year is here! Don’t let taxes stress you out or take the joy out of your giving. That’s why you have us. If you want to dive deeper into a conversation about whether or not these strategies work for your financial plan, simply schedule a meeting and allow us to help you make the most of your generosity!

Thank you for your continued trust in Benson Financial Group. Please let us know if you have any questions about either of these issues.