Personal Finance

Why donating cash won’t offer the biggest tax break on Giving Tuesday

Published

1 month ago

December 3, 2024

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It’s easy to swipe your credit card or send a check when donating to charity. But you could score a bigger tax break by gifting another asset.

Some 34 million U.S. adults gave $3.1 billion for Giving Tuesday 2023, up by 0.6% from 2022, according to estimates from GivingTuesday Data Commons.

Profitable stock is “one of the best targets for charitable giving” if the organization can accept it, said certified financial planner Michael Lofley with HBKS Wealth Advisors in Stuart, Florida. He is also a certified public accountant.

“If you donate the stock directly to charity, you don’t owe taxes on a sale, and neither does the charity when they sell it,” he said. “Everyone wins except the IRS.”

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When filing taxes, you claim the bigger of the standard deduction or your total itemized deductions. The latter may include charitable gifts, medical expenses, state and local taxes capped at $10,000 and more.

Since 2018, there’s been a higher standard deduction, and only about 10% of taxpayers itemized tax breaks on 2021 returns, according to the most recent IRS filing data.

For 2024, the standard deduction is $14,600 for single taxpayers and $29,200 for married couples filing together. Your total itemized deductions must exceed those thresholds to claim the charitable deduction.

Cash gifts are ‘not usually the most tax-effective’

“While giving cash is great, it is not usually the most tax-effective method” for donations, according to CFP Mitchell Kraus, owner of Santa Monica, California-based Capital Intelligence Associates, where he specializes in charitable giving.

If you’ve owned profitable investments in a brokerage account for more than one year, you’ll pay long-term capital gains taxes when selling the assets, assessed at 0%, 15% or 20%, depending on your taxable income. Plus, there’s a 3.8% investment surcharge for higher earners.

By donating your appreciated assets, you’ll avoid capital gains taxes on growth. Generally, you can deduct the market value of the investment, assuming you’ve owned it for more than one year. Itemizers can claim a deduction capped at 30% of adjusted gross income for public charities.

Consider ‘stacking deductions’

With a higher standard deduction, investors often bunch donations of profitable investments, experts say.

Donors may consider “stacking deductions in alternating years,” to exceed the yearly standard deduction, said CFP Paul Penke, client portfolio manager and operations director for Ironvine Capital Partners in Omaha, Nebraska.

One way to achieve that is by opening a so-called donor-advised fund, according to Penke. These investment accounts offer an upfront deduction and flexibility to make future gifts to eligible nonprofits.

Personal Finance

Student loan payments could lead to a tax break

Published

55 minutes ago

January 7, 2025

Business Finance News

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There’s one upside to your student loan payments: They might reduce your 2024 tax bill.

The student loan interest deduction allows qualifying borrowers to deduct up to $2,500 a year in interest paid on eligible private or federal education debt. Before the Covid pandemic, nearly 13 million taxpayers took advantage of the deduction, according to higher education expert Mark Kantrowitz.

Most borrowers couldn’t claim the deduction on federal student loans during the pandemic-era pause on student loan bills, which spanned from March 2020 to October 2023. With interest rates on those debts temporarily set to zero, there was no interest accruing for borrowers to claim.

But interest on federal student loans began accruing again in September of 2023, and the first post-pause payments were due in October of that year.

By now, borrowers could again have interest to claim for the full tax year’s worth of payments, experts said.

“All borrowers should explore whether they qualify for the deduction as it can reduce their tax liability,” said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps borrowers navigate the repayment of their debt.

Student loan interest deduction worth up to $550

The student loan interest deduction is “above the line,” meaning you don’t need to itemize your taxes to claim it.

Your lender or student loan servicer reports your interest payments for the tax year to the IRS on a tax form called a 1098-E, and should provide you with a copy, too.

If you don’t receive the form, you should be able to get it from your servicer.

Depending on your tax bracket and how much interest you paid, the student loan interest deduction could be worth up to $550 a year, Kantrowitz said.

There are income limits, however. For 2024, the deduction starts to phase out for individuals with a modified adjusted gross income of $80,000, and those with a MAGI of $95,000 or more are not eligible at all. For married couples filing jointly, the phaseout begins at $165,000, and those with a MAGI of $195,000 or more are ineligible.

Personal Finance

Op-ed: Here’s why estate planning is a gift for your family

Published

5 hours ago

January 7, 2025

Business Finance News

Estate planning isn’t about focusing on your demise, one advisor says; it’s about taking control and making decisions that ensure your loved ones are cared for.

Personal Finance

CFPB finalizes rule to remove $49 billion in medical debt from credit reports

Published

6 hours ago

January 7, 2025

Business Finance News

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The Consumer Financial Protection Bureau on Tuesday announced it has finalized a rule to remove about $49 billion in medical debt from credit reports, a change that will affect an estimated 15 million Americans.

Individuals who have medical debt on their credit reports may see their credit scores increase by an average of 20 points following the rule, according to the CFPB. It said the change is also expected to result in the approval of about 22,000 additional affordable mortgages every year.

With the rule, consumer reporting agencies will be prohibited from including medical debt information with credit reports and credit scores sent to lenders. In addition, creditors will no longer be able to use certain medical information for lending decisions. The CFPB proposed the rule in June.

More than 100 million Americans struggle with medical debt, which comprises the largest type of debt in collections ahead of auto loans, credit cards and utilities, according to the Biden-Harris administration.

Consumers are often asked to pay balances that should be covered by health insurance or financial assistance programs, and also frequently report receiving inaccurate medical bills, according to the CFPB.

The consumer finance watchdog agency’s move comes after its own research found medical bills on credit reports are not good predictors of whether someone will repay a loan.

“People who get sick shouldn’t have their financial future upended,” CFPB Director Rohit Chopra said in a statement. “The CFPB’s final rule will close a special carveout that has allowed debt collectors to abuse the credit reporting system to coerce people into paying medical bills they may not even owe.”

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A 2022 report released by the agency found medical bills accounted for $88 billion of debts reported on credit reports as of June 2021. Following those findings, the three major credit reporting agencies — Equifax, Experian and TransUnion — took some types of medical debt off credit reports, such as debts under $500. Credit scoring companies FICO and VantageScore also moved to de-emphasize the impact of medical debt on credit scores.

More than $1 billion in medical debt eliminated

Along with the finalization of the CFPB rule, Vice President Kamala Harris announced that more than $1 billion in medical debt has been eliminated for more than 750,000 Americans in certain states, counties and cities.

Residents have had medical debt eliminated in states including New Jersey and Connecticut; counties including Cook County, Illinois; Lucas County, Ohio; Wayne and Oakland counties, Michigan; and cities including Cleveland and Toledo, Ohio; New Orleans; St. Paul, Minnesota; and Washington, D.C.

Up to $7 billion in medical debt may be eliminated for almost 3 million Americans by the end of 2026 with the support of the American Rescue Plan Act, legislation that was enacted in 2021.

“No one should be denied economic opportunity because they got sick or experienced a medical emergency,” Harris said in a statement.