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Tax Advantageous Tips for the 2021 Charitable Giving Season

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Spurred in part by the pandemic, a record $ 471 billion was donated to U.S. charities in 2020, according to Giving USA. I expect this trend to continue this year, as individuals, couples and families are inspired, perhaps more than in previous years, to make an impact on their communities and the causes they hold dear. heart.

For those planning to contribute to charities this year, consider these strategies for making the most tax-efficient donation.

A common mistake that I often see novice donors make is their preference to write a check to charity, assuming this is the easiest and most efficient route. Given the stock market’s strong 10-year run, donors may instead consider offering valued stocks or concentrated positions if they are looking to reduce portfolio holdings.

When an individual donates, for example, $ 5,000 in valued securities versus $ 5,000 in cash, they reap a handful of benefits. Not only does this rebalance their portfolio, but it provides an incentive for tax deduction – the donation can reduce taxable income, but only if the recipient organization qualifies (use this IRS tool to find all tax-exempt charities ). Additionally, the gift allows the donor to avoid paying capital gains tax on the security. The charity also avoids taxes when it sells the donated investment.

For some novice philanthropists, it is tempting to donate cash, however, donating securities can be a much more strategic and tax-efficient approach for the donor, and encourage other donations to benefit charities.

According to the Giving USA report, donations to education, human services, and environmental and animal organizations were estimated to have the highest increases in 2020. For my clients who want to expand their giving – whether it’s increasing the amount they donate or choosing to donate to multiple causes – I have recommended that they use the Non-Profit Help Viewer. Profit (NAVI), powered by Vanguard Charitable. This tool identifies the charities most affected by the pandemic, giving individuals a clear picture of the donation landscape and organizations most in need.

For a seasoned philanthropist who may be inspired to donate more this year than in previous years, they may consider “stacking” a donation. This allows up to 30% of a donor’s Adjusted Gross Income (AGI) to be deducted when donating valued securities, followed by an additional 30% in cash (or an additional 20% in cash if donated to a fund advised by a donor. donor), providing a tax deduction on both securities and cash donations. While the stacking benefit allows a donor to use valued titles, it should be noted that for those who are extremely philanthropic, the CARES Act and the Coronavirus Stimulus Act have increased the ability to deduct up to 100% of a donor’s AGI if they contribute cash to a working charity. This year.

Besides stacking, another strategy for a seasoned donor is to donate securities through a Donor Advised Fund (DAF), a charitable giving account that allows a donor to invest, grow and donate. active.

If a donor plans to donate to multiple charities this year, but isn’t sure which causes to contribute to, a DAF is a good parking spot. The donor can benefit from the immediate tax deduction once the DAF is funded and decide which charities will receive the funds at a later date. In addition, a DAF allows a donor to distribute his donations on an ad hoc basis. For example, with $ 25,000 in the DAF, that amount can be donated in full to one charity or separate to five charities receiving $ 5,000 each – and donations can be made over multiple years.

In addition to the philanthropic experience, there are also tax-advantaged charitable giving strategies related to the donor’s age. A Qualified Charitable Distribution (QCD) is a great way to donate dollars to charity for donors who are at least 70 and a half years old (Question: I just want to make sure it shouldn’t be 72. The answer is YES.) At the time of distribution. This strategy allows a donor to use their IRA dollars to donate directly to a qualified organization. For those in a high tax bracket, this can be a tax-efficient way to spend an IRA while avoiding regular income taxes – which would otherwise be owed on distributions – since dollars are donated. In addition, the Minimum Annual Required Distributions (RMD) can be made to a qualified charity (up to $ 100,000), which can minimize the tax consequences of the RMD.

2021 could be another strong year for charitable giving as donors remain motivated to help their local communities and causes that need resources due to the continuing impact of the pandemic. With only a few weeks in the year, donors of all levels of wealth and philanthropic experience should think about the different giving tactics available to them in order to maximize the tax efficiency of their giving for themselves and their recipient organizations.

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