Tax preparation can be complex, especially when deciding whether to claim the standard deduction or itemize deductions on your federal tax return. The Tax Cuts and Jobs Act (TCJA) brought significant changes, including nearly doubling the standard deduction through 2025. This shift has led many taxpayers to opt for the standard deduction, making it essential to understand how these choices impact charitable contributions and overall tax savings.
With thoughtful planning, you can align your charitable giving with effective tax strategies to maximize benefits. Here’s what you need to know about tax preparation, charitable contribution deductions, and strategies like “bunching” that can help you make the most of your efforts.
Understanding Charitable Contribution Deductions
To deduct charitable contributions on your tax return, your donations must go to qualified charitable organizations recognized by the IRS. The type of assets you donate—cash, property, or other items—affects how much of your contribution you can deduct.
- Monetary Contributions
- You can generally deduct up to 60% of your adjusted gross income (AGI) for cash donations to qualified charities.
- Donations to nonoperating private foundations have a limit of 30% of AGI.
- Property Contributions
- For long-term capital gains property, you can typically deduct its fair market value (FMV) up to 30% of AGI.
- The limit drops to 20% of AGI for donations to nonoperating private foundations.
Excess contributions can be carried over for up to five years. Additionally, if you donate appreciated property held for more than one year, you can deduct its FMV without incurring a capital gains tax liability.
Key Considerations for Tax Preparation
Tax preparation involves more than tallying deductions. It’s about strategizing to lower your tax bill while aligning with your financial and charitable goals. Recordkeeping is a critical component.
- Written Acknowledgments
The IRS requires written acknowledgment for monetary contributions of $250 or more. For property donations valued over $5,000, you’ll need a qualified appraisal. - Mission Alignment
Donated property must further the recipient organization’s tax-exempt mission. For example, artwork donated to a museum should ideally be displayed and not stored away.
The Bunching Strategy: A Tax-Saving Tool
A popular tax preparation strategy is “bunching,” which involves concentrating your charitable contributions into specific years. This approach allows you to itemize deductions in high-donation years while claiming the standard deduction in other years.
Example of Bunching in Action
Consider Joe and Joanne, a married couple with a 2024 standard deduction of $29,200. They anticipate the following itemizable expenses for the year:
- $10,000 in state and local taxes.
- $15,000 in mortgage interest.
By contributing $8,000 to charity in 2024, their total itemized deductions would rise to $37,000, exceeding the standard deduction by $7,800. At a 32% tax rate, this decision reduces their tax liability by $2,496.
If their itemizable expenses were significantly lower, they could delay the donation to 2025, maximizing their deductions that year instead. This flexibility underscores the importance of evaluating your tax situation annually.
Donor-Advised Funds: Simplify Your Contributions
If you want to bunch contributions but need more time to choose charities, consider establishing a donor-advised fund (DAF).
- How It Works
You can make a lump-sum contribution to a DAF in a high-donation year, securing a deduction for that year. The fund administrator invests the money, and you can distribute the funds to charities of your choice over time. - Benefits
DAFs offer flexibility and allow you to take advantage of the bunching strategy while supporting charities on a timeline that works for you.
The Standard Deduction vs. Itemizing
Your decision to claim the standard deduction or itemize deductions affects whether your charitable contributions yield tax benefits. For 2024, the standard deduction amounts are:
- $14,600 for single filers and married individuals filing separately.
- $21,900 for heads of households.
- $29,200 for married couples filing jointly.
Taxpayers age 65 or older or those who are blind can claim an additional $1,950 ($1,550 if married).
When to Itemize
If your itemizable deductions exceed the standard deduction, it’s worth itemizing. Typical itemizable expenses include:
- Mortgage interest.
- State and local taxes (up to $10,000).
- Medical expenses exceeding 7.5% of AGI.
- Charitable contributions.
Additional Tips for Effective Tax Preparation
- Plan Ahead
Don’t wait until the end of the year to assess your tax situation. Regularly review your finances to identify opportunities for deductions and other strategies. - Leverage Professional Guidance
Tax preparation can be overwhelming, but a qualified CPA can provide valuable insights tailored to your unique circumstances. They can also ensure compliance with complex IRS rules and help you avoid costly mistakes. - Evaluate Non-Cash Contributions
If you’re donating assets like stocks, property, or collectibles, carefully document their value and ensure they meet IRS requirements. This step is crucial for maximizing deductions.
Charitable Giving Beyond Tax Benefits
While tax preparation strategies can enhance the financial impact of your charitable contributions, it’s essential to focus on the causes you care about most. Whether you’re donating to support education, healthcare, or environmental initiatives, your generosity makes a difference.
Ready to Simplify Your Tax Preparation?
Effective tax preparation requires a proactive approach, especially when managing deductions for charitable contributions. At Burton McCumber & Longoria, we specialize in personalized tax strategies to help you achieve your financial goals while supporting the causes you care about. Contact us today to schedule a consultation with our experienced CPAs and take the stress out of tax season.
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