With the holidays fast approaching, now is a great time to “merry” up charitable giving with tax savings.
According to the National Philanthropic Trust, 69% of charitable giving last year came from individuals—a total of more than $324 billion.
This was a heartening increase over 2019 giving in a time of widespread economic uncertainty.
Such generosity bestows glad tidings—a chance to bask in the goodness of giving while maximizing charitable contributions.
Get the Most from Your Giving
In addition to the abundant benefits of giving—greater health and happiness, enhanced community ties, and feelings of gratitude and goodwill—individuals can revel in a number of opportunities to increase the impact of dollars donated.
For more holiday punch, donate non-cash assets
Taxpayers who gift appreciated non-cash assets to a favorite charity can spread considerable cheer.
If the asset has been held for a year or more, donors can claim the fair market value (up to 30% of adjusted gross income) as an itemized deduction.
This approach offers a generous win-win dollop of joy.
First, gifting non-cash assets eliminates the potential for taxes owed on realizing capital gains on an appreciated asset had it first been sold then the proceeds donated.
Second, because the recipient charity is exempt from taxes, the charity receives the full fair market value of the appreciated asset donation, without owing taxes on realized gains.
Bunching can be better
Bunching donations—that is, concentrating a few years’ worth of deductions in a single year, then skipping one or more years—can work well when total itemized deductions for a single year fall below the standard deduction.
With far fewer people itemizing their deductions in recent years given the increase to the standard deduction, donors aren’t always receiving a tax benefit for their charitable contributions.
This is where bunching comes into play.
As you can see in the example below, this married couple would fall just shy of itemizing their deductions each year—giving them no tax benefit for their charitable donations since they would have received the standard deduction anyway.
But by bunching three years’ worth of charitable donations into one year, they are able to receive a tax benefit for their generosity.
A donor advised fund is a great vehicle to facilitate bunching.
Donor advised funds allow taxpayers to make a charitable contribution, receive an immediate tax benefit, and then later (sometimes years later) release grants from the fund to charity.
This gives donors flexibility to send money to charity at the same pace they otherwise would have— all while receiving a tax benefit for their donation.
Gifts from—and for—retirees
Donors at or near retirement age can maximize charitable giving as part of well-considered legacy planning.
Qualified charitable distributions. Taxpayers age 70½ and older can direct up to $100,000 per year tax-free from their IRAs to charities through a qualified charitable distribution (QCD).
This strategy can ring in a merry bunch of benefits.
For those age 72 and older, QCDs can satisfy required minimum distributions (RMDs) up to $100,000. The win here? Money that would have otherwise been reportable as income bypasses a taxpayer’s return and goes directly to charity.
QCDs also reduce a donor’s IRA balance, which can potentially reduce taxable income in future years, lower the taxable estate, and limit beneficiaries’ tax liability.
For individuals who do not itemize, QCDs can be a smart move since they are not reported as income—therefore giving taxpayers the same net effect as an itemized deduction.
CARES Act Deductions
Through 2021, CARES Act provisions allow taxpayers taking the standard deduction to claim an additional deduction of up to $300 ($600 for married couples filing jointly) for cash contributions to operating charities.
‘Tis Better to Share—and Save
While it is better to give than to receive, it’s also lovely to share—and save.
Supporting worthy causes is gratifying in itself, doubly so when you plan in advance to enjoy the added benefit of available tax deductions.
To discuss how best to pair your philanthropic goals with tax-friendly moves, contact your Vista advisor. We’ll help you give with a glad heart—and a glowing tax return.
