How to Pay Less in Taxes if You Give Charitably

When tax season rolls around each year, you probably wonder if there are ways you could be saving money you just aren’t aware of.?

After all, none of us want to pay more to Uncle Sam than we are required to.?

If you actually enjoy giving money to the government, you can make charitable donations to them using this link - Bureau of the Fiscal Service - Public (treasury.gov)

For the rest of us, let’s talk about a commonsense strategy many can use to save more of their hard-earned dollars.?

This particular approach helps taxpayers who make significant charitable contributions benefit to a greater extent from their generosity.?

The best way to explain is with a hypothetical example: Meet George and Jenny Goodman.?

Mr. and Mrs. Goodman have been married for 20 years. They have three children who range from junior high to high school. Life is crazy and full, but they are passionate about many charitable causes in their community!

Both Mr. and Mrs. Goodman are full-time in their careers. Mrs. Goodman is a C-suite level executive and Mr. Smith is a highly trained professional in the medical field.?

Their household income is north of $350,000 annually and they give $45,000 a year to non-profits while maintaining great cash flow and savings.?

Each year their itemized deductions are around $65,000 after adding their local taxes and mortgage interest to their donations.?

George and Jenny feel pretty good about the deductions they are taking but wonder if they could be doing more to maximize their savings.?

The answer is yes!

In 2024, the standard deduction for a married couple filing jointly is $29,200. This means without any itemization, they could deduct $29,200 off their adjusted gross income.?

However, this is much less than the itemized deductions they have been taking, so most people in their situation would keep doing the same thing.?

This is where creative tax planning comes into play!

The idea is to group your charitable giving in every other year. Here’s how it works.?

If the Goodmans give $90,000 every two years instead of $45,000 annually, the math shakes out this way.?

Compare this to the old way George and Jenny were doing things.?

Just by changing the timing of their giving from a tax perspective, the Goodmans are able to increase their deduction over that 2-year span by $9,200.?

Given their income level, this likely means saving an additional $2,500!?

Of course, there are a few other considerations when using this strategy which can increase the impact even more while making life easier.?

With this approach, the more years you can group together, the more additional savings you can accrue. This does depend on how much liquid savings you have available which is why most people stick with every other year.?

If you do receive a large windfall such as an inheritance or bonus, utilizing it for this strategy can allow you to give 3, 5, or even 10 years of gifts in advance to maximize your tax refunds!

Many givers don’t want to make all of their donations at once. However, that preference doesn’t rule out this strategy.?

Using a donor-advised fund, you can group your giving into one tax year while still maintaining the freedom to distribute the gifts to the non-profits at any time in the future.?

If you are interested in seeing if this strategy is a good fit for you, I encourage you to talk with your financial advisor and tax professional.