Two in One: Charitable Donations and Tax Deduction
By Janice Erzmoneit
This year, a few changes to the tax rules will affect charitable giving and create opportunities for larger charitable tax deductions for many people.
1 - If you take the standard deduction on your tax return, you can get an additional tax deduction of up to $1,000 for single filers or $2,000 for married couples filing jointly for your charitable contributions. So if you haven’t yet made a charitable contribution of $1,000 or more, consider making a donation to Child Focus before December 31, to take advantage of this additional tax deduction!
2 - If you itemize your deductions in tax years AFTER 2025, the deductible amount of your contributions will be reduced. Only the portion of your charitable contributions that exceeds 0.5% of your adjusted gross income (AGI) will be deductible. This creates an opportunity to maximize your tax deductions THIS year by setting up and contributing to a donor-advised fund (DAF) in 2025. This allows donors to take the full deduction for the amount contributed to the DAF 2025 under current rules, while distributing funds to charities over time — even after the new floor takes effect in 2026.
3 - If you have appreciated investments, you can avoid paying capital gains tax by donating the stock directly to the charities you support and your donor-advised fund. Your tax deduction will be based on the appreciated value of the stock, and there will be no capital gains tax to pay on the gain. The rule applies to donations to a DAF as well as contributions to qualified charities.
4 - If you are required by tax law to take a minimum distribution from your tax-deferred IRA accounts, you can transfer the distribution directly to a charity rather than your own account, and get a tax deduction for the donation. You will not have to pay tax on the distribution.
How much you can save in taxes is dependent on your individual circumstances, so consult with a tax expert to see if any of these strategies might help you support the charities whose work is important to you. Many nonprofits are facing serious funding cuts in the current environment, and your donations will help them survive and thrive.