Maximizing Your Charitable Giving in 2021
In a year of unprecedented events and challenges, charitable giving via individuals, bequests, foundations and corporations reached a record $471.44 billion in 2020 according to Giving USA Foundation. Despite the ongoing challenges and uncertainty that has carried over into 2021, the environment remains favorable for strategic philanthropy. Here are some tax favorable opportunities for your charitable planning in the remainder of 2021:
In your portfolio you may have highly appreciated non-cash assets that have been held for over one year. This creates an opportunity to donate the stock, mutual fund or ETF shares. Beyond claiming a deduction for the fair market value of the asset, you can potentially eliminate the capital gains tax you would otherwise incur if you sold the asset and donated the cash proceeds. This can mean more goes to your charity and less to taxes.
Make a Qualified Charitable Distribution (QCD) of IRA Assets
Whether itemizing or claiming the standard deduction, if you are age 70½ or older you can direct up to $100,000 per year tax-free from your Individual Retirement Account (IRA) directly to a 501c3 charity, or charities. Even though the age of the IRA RMD requirement was raised to 72 by the SECURE Act in 2020, the QCD age remains at 70½. By reducing your IRA balance, a QCD may also reduce your taxable income in future years, lower your taxable estate, and limit IRA beneficiaries' tax liability.
Here though are some rules to remember for using a QCD:
- QCDs cannot be used for purchasing charitable gift annuities, or contributing to donor-advised funds, supporting organizations, or private foundations.
- The distribution must be made directly to the charity, or charities, not to the owner or beneficiary. The distribution check should be made out to the charity or charities, or it will be counted as a taxable distribution. You the IRA owner, or a beneficiary, can receive the check and deliver it to the organization, but you cannot deposit the check and make out another one to the charity.
- Deadline for the QCD distribution is December 31, 2021.
Current Tax Benefits
Annual income tax deduction limits for gifts to public charities, including donor-advised funds, are 30% of adjusted gross income (AGI) for contributions of non-cash assets held more than one year, or 60% of AGI for contributions of cash. Donation amounts in excess of these deduction limits may be carried over up to five tax years.
Extension of Coronavirus Aid, Relief and Economic Security (CARES) Act Provisions
Extended through 2021, individuals taking the standard deduction can claim an additional deduction of up to $300 for cash contributions directly to operating charities, and couples taking the standard deduction can claim up to $600.
Here are two things however to keep in mind:
- Donors who itemize deductions may elect a CARES Act 100% of AGI deduction limit for cash contributed directly to operating charities, and deduction amounts above this limit may be carried over for up to five tax years. In addition, the annual deduction limit for cash contributions by a business remains at 25% of taxable income instead of reverting back to the 10% cap.
- CARES Act incentives are not applicable for contributions to donor-advised funds, supporting organizations, or private foundations.
In an uncertain world strategic charitable giving continues to be the foundation to give more to the causes you care about while still living an amazing life and taking care of the ones you love. If you would like to improve the value and impact of your philanthropy, please contact your oXYGen Financial Private CFO® to get started!