Retirement-age individuals can still benefit financially from helping others this year by making charitable contributions that qualify for tax deductions. But time is of the essence.
Charitable contributions are always welcome if we’re in a position to do so. Donating to charity in 2024 may still provide tax benefits, so wait to write off giving. Here are five tried-and-true methods that you, a retired person, may find especially appealing.
Bunch All Your Donations Together.
Since the 2017 revisions to income taxes enacted by the Tax Cuts and Jobs Act, retirees, in particular, have been inclined to opt for the standard deduction. While this has simplified the tax filing process, the benefit of the charitable income tax deduction has been lost.
However, if you’re willing to itemize your deductions at least some of the time, you can still benefit from a tax strategy. One strategy that has gained traction is to save donations for a specific year. The idea of “bunching” is to make more significant donations in one year in order to itemize and deduct the donation and then scale back in the following year.
Donate to charity this year instead of waiting until next. Since the larger amount will be donated, you can claim a charitable contribution deduction on your tax return this year. Don’t worry about maxing out your charitable giving next year—the standard deduction will save you money on your taxes.
Invest in Donor-Advised Funds.
It’s common to feel both a desire to help those in need and a sense of fulfillment after making a charitable donation. It’s only natural to feel wrong about not being able to make a generous donation this year if you went overboard on giving the year before.
Donor-advised funds are a standard tool for minimizing taxes through controlled gift timing (DAF). This widely used method of giving allows donors to maximize their tax benefits by making fewer, more significant donations over time. Donating to a DAF allows you to take advantage of the current year’s tax benefits of making a sizable donation while deferring the decision about which charity (or charities) will receive the proceeds until the following year, 2024. With this method, you can coordinate your deductions with multiple charities while maintaining complete discretion over the amounts and timing of the donations.
The additional benefit for the elderly: Create a DAF and appoint your grown children to serve as advisors. Donor-advised funds (DAFs) make it possible for parents and their children to make charitable contributions together or under parental supervision, allowing you to instill in your offspring a sense of generosity and pass on your values. Even after your passing, they can serve as your successor advisors and keep your charitable giving in your name.
Prepare a Charitable Annuity Donation.
While retirees may not have a steady paycheck, they may be able to turn their appreciated assets into a source of income. The worry is that when these assets are turned into revenue, the appreciation will be subject to taxation.
A charitable gift annuity can help a retiree who wants to donate while meeting their other financial needs, provide for the charity of their choice, reduce their tax liability, and supplement their retirement income.
The agreement between a donor and a charity to provide the donor with a lifetime stream of payments equal to a percentage of the discounted value of the assets donated is relatively straightforward. It is a charitable gift annuity, and the charity keeps the assets after the donor passes away.
Many higher education institutions and philanthropic organizations offer charitable gift annuities, with the number of payments you receive being determined by your age. Including your spouse in the payments will reduce the total amount you receive.
A charitable gift annuity can help retirees in several ways: they can make a generous contribution, reduce their taxable income, and secure a steady income stream for the rest of their lives. As a bonus, any capital gains attributable to the deductible portion are not subject to taxation. This direct exchange saves retirees valuable time and energy by eliminating the need for complex tax and legal planning.
If you choose this route, consult with a tax professional first. For instance, you’ll have to pay income tax immediately if you give your child your IRA. When you donate an appreciated investment to charity, you and your child will be exempt from paying capital gains tax on the appreciation.