Changes To The Standard Deduction In 2024


For those who are charitably inclined, it is important to take into consideration the increased dollar amounts for the standard deduction in 2024.

The standard deduction is a specific dollar amount that reduces the amount of income on which you're taxed. It is an indexed amount that is adjusted each year to inflation. That means that as inflation increases, so does the amount exempt from income taxes. Did you know that approximately only 10% of tax payers itemize?* Or another way said, ~90% of taxpayers are not receiving the tax benefit on their charitable giving.

Below is a standard deduction chart for 2023 and 2024:

As you make plans for your charitable giving in 2024, we want to help you give more strategically to stretch your dollars.

Donor Advised Funds

Using a donor advised fund (DAF) can make it easier to itemize your charitable deductions. A DAF can also be an excellent generosity-maximizing tool.

Taxpayers who donate significant amounts to charities each year and still find themselves slightly below the standard deduction threshold may want to consider bunching itemized deductions. Many of our clients use a giving strategy called, "charitable bunching" to maximize their tax deductions and maximize what they are able to give.

"Charitable Bunching"

The concept of "charitable bunching" means contributing more than one year’s worth of charitable contributions in a single tax year to help minimize your tax burden in the long-run and maximize what you can give to charities.

You are eligible for a tax deduction in the year that you make a donation into a DAF even if the funds are not distributed in the same year.

For example:

Scenario 1: Annual charitable giving

The Smith family gives $8,000 to their church every year. In 2023 and 2024, they also have $15,000 in other deductible expenses, bringing their total deductions to $23,000.

2023: $8,000 (charitable giving) + $15,000 (miscellaneous) = $23,000 deduction 
2024: $8,000 (charitable giving) + $15,000 (miscellaneous) = $23,000 deduction

They will take the standard deduction of $27,700 in 2023 and the standard deduction of $29,200 in 2024, meaning that they have received no tax benefit for their charitable giving.

Scenario 2: Bunching charitable deductions

The Smith family is able to increase their giving to $16,000 in 2023: They donate the usual $8,000 to their church and donate the remaining $8,000 into a DAF.

They can now itemize their tax deductions in 2023:

2023: $16,000 (charitable giving) + $15,000 (miscellaneous) = $31,000 deduction 

Next year, they can give through their DAF to support their church and will receive the $29,200 standard deduction.

2024: $0 (charitable giving) + $15,000 (miscellaneous) = $15,000 deduction

Bunching tax deductions—charitable gifts or other deductions—is one great way to expand your generosity. It can provide you with more flexibility and opportunity to give.

If you are interested in learning more about how we can serve your charitable giving and other financial planning needs, please contact us at 302.234.5655 or contactus@covenantwealthstrategies.com to learn more.

Disclosures:

Content in this material is for general information only and is not intended to provide specific financial, tax, or legal advice for any individual. And it may not be used for the purpose of avoiding any federal tax penalties. Please consult financial, legal or tax professionals for specific information regarding your individual situation.

Source:

*Standard Deductions for 2023-2024 Taxes: Single, Married, Over 65 – Forbes Advisor