2021 Charitable Giving

Charitable contributions often have a double benefit. The main benefit is you are supporting local organizations and making a difference in your community. The other is it can help reduce the amount of tax you owe to Uncle Sam.

2021 is a great year to support charities that you are passionate about for a couple of reasons. This year married couples will be able to deduct $600 for cash donations ($300 if single) even if they do not itemize. This deduction is currently set to expire after 2021. Also, in 2021 individuals that itemize can elect to deduct donations up to 100% of their 2021 Adjusted Gross Income (AGI), up from 60% in prior years. The increased deduction is only for donations that are made to public charities such as the Burton Fletcher Foundation for Animals.

If you have an IRA, you should consider a Qualified Charitable Distribution (QCD) for making gifts. A QCD is a direct transfer of funds from your IRA to a qualified charity. QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year if certain criteria are met. RMDs are distributions individuals must take each year from their retirement savings accounts once they reach age 72. The great advantage of a QCD is the ability for the taxpayer to lower their Adjusted Gross Income (AGI) as QCD’s are never included in income. This is more beneficial than deducting a charitable contribution as an itemized deduction since AGI is used for many tax calculations to determine deductions and credits. Also, many individuals no longer itemize their deductions.

You can also donate long term capital gain property such as stocks. The deduction for long-term capital gain property is the fair market value (FMV) of the property on the date of the donation. If you have a stock that has greatly appreciated in value, you could donate it to avoid paying tax on the appreciation when you sell and get an itemized deduction for the donation. You essentially would be receiving a double tax benefit on appreciated property.

When supporting local charities, taxpayers have many choices about which option is best for them. Everyone’s situation is different and there is not always a clear-cut answer. Contact us if you would like more information on charitable giving or a consultation to determine what is the most tax efficient strategy for you.