Charitable Giving Strategies for Year-End

 

During the holiday season, many people look for ways to combine their desire to help causes they believe in with the benefit to save on taxes.

 

Generally, if you itemize your deductions, making charitable contributions can decrease your taxes, because highincome earners generally pay tax at higher rates, they may enjoy a particularly large tax benefit from charitable contributions.

 

4 Tips for Year-End Giving

  1.  Consider opening a donor-advised fund

A simple, flexible and tax-efficient way to give to your favorite charities.

A Donor Advised Fund (DAF) is a charitable investment account, for the purpose of supporting charitable organizations you care about throughout the U.S.  The fund is established by making a contribution of cash, securities or other assets at Hudson Community Foundation. Establishing a DAF allows you to make a gift and qualify for a charitable deduction immediately without needing to decide where to gift. You can make grants on a flexible timetable, build your charitable legacy, and increase your philanthropic funds for future grantmaking. Setting up a Donor Advised Fund with Hudson Community Foundation (HCF) is simple and straightforward.   A minimum of $5,000 to open a fund.  No cost to set up.  Grows tax free! You decide when to grant (allocate funds to charities) anywhere in the United States.  One tax receipt for your charitable giving.

  1. Give long-term appreciated securities

Donations made by cash or check are, by far, the most common methods of charitable giving. However, contributing stocks, bonds, or mutual funds that have appreciated over time has become increasingly popular in recent years, and for good reason.  Most publicly traded securities may be donated to a public charity. If the security has been held for more than one year when the donation is made, the donor can claim the fair market value as an itemized deduction on their federal income tax return (assuming they itemize their deductions). The amount deducted in a single year can be up to 30% of the donor’s adjusted gross income (AGI). Other types of securities, such as restricted or privately traded securities, may also be deductible, but additional requirements and limitations may apply. No capital gains taxes are owed when the securities are donated, not sold.

  1. Consider a Qualified Charitable Distribution (QCD) from an IRA

If you are at least age 72 and have an IRA, and plan to donate to charity this year, another consideration may be to make a QCD from your IRA. This action can satisfy charitable goals and allows funds to be withdrawn from an IRA without any tax consequences. A QCD can also be used to satisfy your required minimum distribution (RMD)—up to $100,000.

QCDs may be particularly appealing if you have few other itemized deductions or if you are already close to your charitable deduction limitations. Because the tax-free QCD is never reported as income or as a deduction, it is not counted against the charitable limits and does not require itemization to be effective.

So, if you are subject to an RMD, don’t need the funds, and would face increased income tax liabilities if you took the entire RMD, a QCD can yield both a good tax and philanthropic result.

Hudson Community Foundation has solutions for you! Contact us to learn about the great ways to turn your IRA into charitable-giving solutions and avoid taxes on qualified amounts you are required to take as an RMD.

  1. Consider a bunching strategy from year to year

The 2017 tax laws simplified tax filing for many people by increasing the standard deduction and capping many itemized deductions. This means some filers who used to itemize may no longer need to do so, it became difficult for those filers to get a tax deduction for their charitable contributions.

To make the most of the potential tax deductions, consider "bunching." That means concentrating deductions in a single year, then skipping one or even several years. This strategy can work well when your total itemized deductions for a single year fall below the standard deduction: Charitable contributions to a fund at Hudson Community Foundation made at once may allow the total of itemized deductions to exceed the standard deduction, making it possible to obtain a tax deduction for at least part of the charitable contributions. The catch is that this strategy requires having the financial capacity to pack more than years’ worth of your contributions into a single year.

 

In addition to the four strategies above, through the end of 2021, the CARES Act provides a couple of additional possibilities:

You could consider a strategy from a CARES Act provision that allows individuals who don’t itemize to claim a deduction for a charitable cash contribution up to $300 ($600 for those married filing jointly). In addition, for those who do itemize and are planning on very large cash gifts, the CARES Act has temporarily raised the annual limit on charitable deductions from 60% to 100% of their AGI. (Donor-advised funds, supporting organizations, and private foundations are not qualifying charities under this CARES Act extended provision.)

Before undertaking any of these giving strategies, you should consult your legal, tax, or financial professional. But each of the strategies, properly employed, represents a taxadvantaged way for you to give more to your favorite charities.

 

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Read more on the CARES Act

 Increases in the AGI Limit

The tax deduction of cash contributions to public charities (including donor advised funds) increased to 60% of adjusted gross income (AGI) in 2017, effective beginning in 2018. The 2020 CARES Act increased the charitable cash deduction to 100% of AGI for 2020 only. Although donor advised funds are excluded from receiving the full 100% deduction, other options like establishing a designated fund at GCF to accept these assets, do exist. Our Philanthropic Advisors can help you with a customized solution to discuss with your tax advisor.  


 

2021 Year-End Giving Deadlines

 

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented, nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.