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4 tips for charitable giving in uncertain times

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We’ve been through a year of turmoil and uncertainty, and many are wondering if this will end in a bang or a whimper. Hopefully for the latter, because 2020 has already been quite a “bang”. One thing that is encouraging, as we have endured these challenges, is that those inclined to charity have stepped up. Thus, the legacy of 2020 will not be a year of unease but rather a year marked by generosity and philanthropic spirit.

In a survey earlier this year, nearly 40% of Americans said they would likely give more to charity this year than in 2019, with 60% suggesting it was due to the pandemic and 19% citing the climate Politics. As we take a look at the record Giving Tuesday numbers, it looks like donors have kept their word. Donors gave around $ 2.47 billion in 2020, a 25% increase from $ 1.97 billion last year. The number of donors who participated in Giving Tuesday also increased, with a total of 34.8 million people compared to 25.56 million in 2019.

We saw a record number of donations in 2020, with Donor Advised Funds (DAF) playing an important role. Money is simultaneously flowing out of their accounts as donors continue to contribute to those same funds, despite the roller coaster of the stock market and the economic crisis. For example, what we’ve seen within our organization, DonorsTrust, is a 30% increase in grant volume. And that number is growing as we are now in the final weeks of December and dealing with a flurry of grant applications. This year, DonorsTrust account holders will have requested more money from their DAF accounts than they contributed.

While there has been a slight increase in donations throughout 2020, the pending revolving door of Washington political institutions may affect future donation patterns. Nothing is certain, but here are four tips for maximizing your charitable giving strategy as we head into the unknowns of 2021.

A notable tax benefit to use before the end of the year is the CARES Act, which created two tax incentives to stimulate giving. The first is a $ 300 deduction that donors can claim for giving cash to charity, even if they take the standard deduction when filing taxes. The second incentive raised the limit on charitable deductions as a percentage of adjusted gross income (AGI) from 60% to 100%. If you are in a position to do so, consider increasing your charitable giving in 2020 to eliminate your federal income tax. Two rules apply: First, this only applies to cash donations and it cannot be used (in full) to fund a donor advised fund account. Second, you can fund your DAF under the old rules (up to 60% of the AGI) and also make qualified donations to a public charity to reach that 100%.

Year-end donations remain popular, as many nonprofits report receiving the majority of their annual donations during this time, especially in December. This is believed to be because people feel generous during the holiday season and therefore are more inclined to give. We may just be a bunch of procrastinators – and we still have a few days to act before the year is out. However, next year, instead of waiting until the last minute and running around to donate to several different charities, plan your giving strategy well in advance. One way to plan effectively for the future is to seek help in the form of a charitable vehicle, such as a donor advised fund.

From a tax perspective, CFOs are the most attractive charitable giving vehicle. The vehicle allows for an immediate tax deduction, even if distributions from the fund are made in the future. And if you already have a DAF, you can claim a current-year deduction for a donation made to your fund before December 31, even if you wait until the New Year to recommend grants to charities. More importantly, by using a DAF now, donors can avoid possible tax law changes put in place by political forces over the next year.

Plus, if you want to donate to multiple charities at the end of the year or throughout the year, CFOs make it easy for you. They offer a simple way to organize donations, by providing a statement that lists each organization supported, as opposed to separate statements from each charity.

At least until the midterm elections in 2022, the margins in Congress and the Senate will be slim – but, combined with a friendlier White House, Democrats will have a slight advantage. This means that if a tax bill were passed and rates were increased, charitable deductions could be taken in the middle. For example, high-income donors can currently write off $ 37,000 from a charitable donation of $ 100,000, but the plan proposed by President-elect Biden would limit the write-off to just $ 28,000. Additionally, Biden’s plan to impose a 12.4% Social Security tax on income earned above $ 400,000 would likely hurt giving, and that tax cannot be reduced by giving. Additionally, he has already signaled that he would like to review (and lower) the current inheritance tax caps, which are currently set to expire at the end of 2025.

As we enter the last days of the year, charitable people still have some time to act. And if you can’t get it all done before your time runs out, take the time to plan your giving strategy for next year instead. The rules around giving are sure to change, so it’s imperative that you take advantage of charitable tax while you still can. Follow these giving strategies and prepare for the tax changes ahead and in the future.

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