With good reason, the last two months of the year are called the giving season. Nearly one-third of annual gifts are made just in December. One reason is that the holiday season evokes a spirit of altruism. Another is that by the end of the year we generally have more clarity about our tax situation and financial prospects. As you engage in your own year-end gift planning, here are six things to keep in mind.
1. If you will not itemize deductions and you plan to make some cash charitable contributions, do so before the end of the year. A non-itemizing couple can deduct up to $600 of cash contributions, and a single filer can deduct up to $300 of them. This non-itemizer deduction expires at the end of this year.
2. If you are in a position to make an extraordinarily large cash contribution that would exceed 60% of your adjusted gross income, make the gift this year when you can deduct up to 100% of your adjusted gross income. This special incentive also expires at the end of 2021.
3. If you are aged 70½ or older and have a regular IRA, consider making a gift from it. You may transfer to one or more charities, cumulatively, up to $100,000 per year. Such a transfer, known as a qualified charitable distribution (QCD), has two major benefits. The amount transferred will not be included in your taxable income and will count toward your required minimum distribution, which begins upon your attaining the age of 72. The transfer is accomplished by advising your IRA administrator to transfer the amounts you specify directly to the charities you designate. This allowable QCD has been in effect for a number of years and, unlike the temporary expiring incentives mentioned above, is not scheduled for termination.
4. If you have established a donor-advised fund (DAF), consider including our organization on your list of recommended charity grantees. Possibly, you contribute amounts to the DAF when it makes sense from a tax standpoint and in other years use grants from the DAF to support favored charities. Although you don’t receive an additional deduction upon recommending a grant to us to support our mission (since the deduction was allowed when you made the gift for the DAF), we do fully recognize you as a contributor and respect your wishes as to the purpose of your gift.
5. If you are planning a year-end gift, determine whether it would be more advantageous to make your gift with cash or with securities. Advantages of cash gifts are simplicity, a higher deduction ceiling enabling you to use the deduction more quickly, and—if you are a non-itemizer—a limited charitable deduction in addition to the standard deduction. A gift of appreciated securities owned more than a year offers two tax benefits: an income-tax charitable deduction for the fair-market value of the securities and no tax on the capital gain. Unless the entire deduction cannot be used in the allotted time (the year of the gift plus up to five carryover years), it is usually better to make your gift with appreciated securities—such as stocks and mutual funds. To ensure a deduction for this year, allow sufficient time to complete the transfer process.
6. If you are possibly interested in a gift arrangement whereby you receive income as well as a deduction, it is advisable to contact us as soon as practical. The five items discussed above all refer to current gifts, which our organization can use now. However, we also offer gift plans whereby you receive life income as well as tax savings. If you would like to explore one of these plans, we would provide a financial illustration explaining your tax benefits and cash flow so that you can discuss the plan with your advisors and make an informed decision.
We would be pleased to answer questions and provide guidance about any of these year-end possibilities, and in future articles we will call attention to any new legislation that might affect your gift planning.
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