Charitable contributions after 2025

[RetireBy90]

I read an article today about changes to federal taxes after 2025. Tax deductions were an item of interest to me. We haven’t itemized in several years due to State and Local Tax (SALT) limits. Standard deduction is well ahead of our itemized with the SALT. Several years ago we made a big contribution to a DAF so we could deduct them and considering if it would be of benefit as opposed to QCD after 70.5 age. Today any charity after 70.5 would come from our IRA so not taxable event.

Question is it would seem that if we made a draw from IRA and sent it to a DAF then it would be included in deductions so it won’t increase taxable income hit, (income in column A, deduction in Column B) but may allow us to include $10K of SALT and mortgage interest which we don’t list today. So a $20K to DAF would decrease out taxable by $10K SALT and $5K of mortgage interest. Of course we would need to watch for impact on MAGI for IRMAA which would include the $20K.

Is my thinking missing something?

 

[audreyh1]

We don’t yet know what is going to happen to income taxes after 2025.

A draw from an IRA does increase taxable income. Certainly for MAGI for IRMAA. You get to deduct a chunk of the donation on Schedule A so it reduces your taxes which helps. The trick is that the standard deduction is very high, so exceeding it enough to be worthwhile can be challenging. And we don’t know what will happen to the standard deduction or SALT restrictions after 2025.

I used to be able to double up deductions every other year, but not for a long while now,

 

[SecondCor521]

Is my thinking missing something?

Well, if you're going to give to charity anyway and don't want to wait until the older of you reaches 70.5, then contributing to charity may be enough to push you over the standard deduction.

But since you use "we", I'm assuming MFJ, and the standard deduction for MFJ is about $30K that you get "for free". So if your itemized deductions add up to $35K between the DAF and SALT and mortgage interest, then you're really only getting $5K of benefit. And that $5K is only a deduction, so you're saving maybe $1K to $2K on your taxes.

But if you're going to DAF anyway, it's probably better to try to DAF two or three years worth of charitable giving so you can use the standard deduction in the out years and itemize the DAF years. This is called "bunching deductions".

As audreyh1 implies, the tax code will probably look different in 2026 and we won't know what it will be like until probably next summer. I wouldn't bother trying to tax plan past 2025 at this point.

 

[cb2008]

We don’t yet know what is going to happen to income taxes after 2025.

A draw from an IRA does increase taxable income. Certainly for MAGI for IRMAA. You get to deduct a chunk of the donation on Schedule A so it reduces your taxes which helps. The trick is that the standard deduction is very high, so exceeding it enough to be worthwhile can be challenging. And we don’t know what will happen to the standard deduction or SALT restrictions after 2025.

I used to be able to double up deductions every other year, but not for a long while now,

You can do a tax free QCD from your traditional IRA so less of your RMD is taxable