Paying it Forward in 2021

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Paying it Forward in 2021

While many are celebrating as they watch their portfolios grow in value, we all know there are many who are struggling financially during these challenging times. Charities are no different, as they have faced a steep decline in 2020 charitable contributions as well as other issues that have negatively impacted their finances since the Covid-19 Pandemic. Whether it is the local Y, religious organization, food pantry, children’s charity, or other favorite charity, it is important to keep in mind that in times of need, many of these charities step in to help others, but now they need our help as a charitable donor. As you consider the charitable giving options for how to help, keep in mind that there are some strategic ways to give to charities that could potentially save you taxes too (some special charitable tax deductions).

Universal Charitable Deductions

Previously, only taxpayers who itemized deductions received a tax benefit when making a charitable contribution. With the CARES Act, individual taxpayers who do not qualify to itemize their deductions are now able to deduct up to $300 per year ($600 for joint filers) for charitable contributions. This applies only for cash contributions. Non-cash contributions do not qualify. This lower limit is a great way for people to get a charitable tax deduction who did not previously qualify for the tax deduction.

Unlimited Charitable Deductions

Taxpayers who itemize deductions were previously limited to claim a maximum charitable deduction of 60% of their adjusted gross income (AGI).  Any excess amount would be carried over to potentially use the following year. Under the 2020 CARES Act, an individual is permitted to make even larger donations – up to 100% of their AGI.  Any excess over the 100% AGI limit will still be carried forward to the following year. This is great for certain taxpayers to increase the tax benefits of charitable giving.

Gifts of Appreciated Stock

With recent market returns, there is a good chance a portfolio holds some stocks and/or funds with sizeable gains.  Selling these could result in a tax liability and continuing to hold them could leave them subject to future market volatility.  When planning charitable gifts this year, consider gifting those highly appreciated securities to a charity.  As long as the securities were held for over 1 year, the tax deduction would be for the security’s fair market value and there would be no taxes due on those gains. Sounds like a win-win!

Donor Advised Fund

Another option for gifting long-term stocks with significant appreciation is a donor-advised fund, which is like a charitable investment account.  Securities can be transferred into and held by a third-party custodian (in exchange for a deductible tax contribution) and can remain invested until funds are released to a qualified 501(c)(3) charity.  Consider frontloading the account with a few years’ worth of contributions to claim a larger tax deduction today.  Funds can then be distributed to selected charities when desired from the donor advised fund. This might be helpful in a year with higher than usual income.

Conclusion

Giving to charity satisfies an innate desire to help others and allows us to use what resources we have to make a difference. These are just some of the strategic ways to meet any philanthropic wishes.  Be sure to discuss these strategies in more detail with your RTWM Wealth Advisor to identify which is most suitable for you.

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2021-03-16T18:57:42+00:00

About the Author:

Mariella Foley is a Partner and Wealth Advisor with Round Table Wealth Management. Read Mariella's Biography >