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Year-End Charitable Giving Strategies

There is no question about it, 2020 has presented us all with unique and challenging experiences. From social distancing to canceled trips and unforeseen financial hardships, there hasn't been a lot to cheer about this past year.

However, a bright spot that I witnessed was how many people stepped up to support the healthcare industry, local businesses, organizations, and individuals who faced challenges this year.

Giving back comes in many forms and there are ways to be strategic about how to leverage your charitable giving contributions for a larger impact.   

·         The CARES (Coronavirus Aid, Relief, and Economic Security) Act is a stimulus package that was passed in March, with tax benefits for those who make charitable gifts in 2020. Taxpayers are allowed to take a deduction on their federal income tax return for any cash given, up to $300, to a qualified charity in 2020. This above-the-line deduction offsets taxable income and applies even if you do not itemize deductions. Another benefit under the CARES act is that taxpayers are allowed a 100% deduction for cash given to public charities in 2020, up from the normal limit of 60% of adjusted gross income. Keep in mind that this deduction does not apply if the cash is given to a donor-advised fund.

·         What is a donor-advised fund anyway?  Donor-advised funds (DAF) are special types of accounts that support charitable organizations. The reason they have become so popular is because taxpayers can make a charitable contribution of cash or appreciated stock for several years’ worth of donations, take the deduction in the year the contribution is made, and still have the ability to distribute these funds to one or more charities over multiple years. By combining large amounts of charitable giving into a single tax year, taxpayers are often able to itemize their charitable gifts when they otherwise would not be able to. In subsequent years you can take the standard deduction until you are ready to contribute to the donor-advised fund again.

Giving back comes in many forms and there are ways to be strategic about how to leverage your charitable giving contributions for a larger impact.

·         Finally, qualified charitable distributions (QCDs) allow for tax efficient charitable gifting from a traditional individual retirement account (IRA) after reaching age 70.5, and the rule says not a day earlier. IRA owners can give directly from a traditional IRA to a charity and avoid paying income tax on the distribution. The SECURE (Setting Every Community Up for Retirement Enhancement) Act was enacted at the end of 2019 and had some changes to distribution rules for retirement accounts, but retirees are still eligible to take advantage of using QCDs at age 70.5 as a tax-efficient way to make charitable donations. A QCD can also satisfy an IRA owner’s required minimum distributions (RMDs) if they are required to take them. But be careful, you cannot make a QCD to a DAF!

These are just a few strategies available to you. We highly encourage you to speak with your tax professional to plan your charitable contributions. Giving back to the charities and causes that you value is more important than ever, and will go a long way in helping make our communities stronger in 2021 and into the future.