Tax / Charity question

[bf0123]

Good afternoon,

My personal finances will be changing considerably from 2024 to 2025 (and forward) due to semi-retirement etc. My wife and I will drop from mid-6 figure income to somewhere around $90k going forward. For 2024 tax year I'm already right at the Itemized deduction start point (eg $29k to deduct, MFJ). We will still owe roughly $16k in Federal (probably $5k in MD state). We are in the 24% tax bracket.

One other important point: we give roughly $10k to charity --to a DAF, and then to 3 dedicated charities-- each year - and will do so going forward.

My question/interest is how to take 2024 tax advantage of this sizeable dropoff in income going forward?

Eg should I "Pre-pay" my charitable giving this year to take advantage of the Federal and state tax deductions I could earn this year? in other words, does it make financial sense to put an additional year or two into the DAF this year, so that I'd pay lower taxes this year?

This strikes me as a way to reduce my tax amount by ~23% for every additional dollar I put into DAF now. That sounds like a great return. On the other hand: what should I be comparing the "pre-paid" money rate to? If the money is currently sitting in VTI...should I be comparing that 23% tax savings to expected growth in VTI over the next couple years? Thanks for any thoughts and consideration you have on the issue.

[neilpilot]

When your standard deduction is close to your itemized deductions, try to lump BOTH your charities and other deductions into alternating years. For example, our annual property taxes are due by February of each year so we can pay tax in Feb and Dec one year (if itemizing), and skip property tax payments the year you take the standard deduction.

[grabiner]

If you pre-pay your charity by investing it in your DAF, it will continue to grow at about the same rate (DAF fees are close to the tax cost). Therefore, it is a pure tax benefit. If a $10K investment grows to $15K before you donate it, then you can spend $5K less of your other money and donate the same total, whether that $10K is invested in your DAF or your taxable account.

[crefwatch]

You only asked about Itemized Deds, but don't forget to consider (ages not given) RMD's, QCD's, IRMAA, and Roth Conversions as you get towards 73.

[Braumeister]

Bunching your donations to the DAF is often a great tactic. By putting several years of planned donations into one year, you can get a big deduction and then use the standard deduction in the off years. Lots of folks do this and I've never heard a downside.

[privateer79]

ideally you should have been loading up your DAF during your last few years for a lifetime of donations in what presumably would have been your highest-income tax bracket years....

don't forget to donate shares with large capital gains to your DAF to avoid capital gains taxes as well...