Maximize Charitable Giving Impact in 2021
We all continue to navigate the challenges of a once-in-a-lifetime global pandemic. And, despite these difficult times, we have witnessed historic levels of generosity from our donors who have significantly increased their contributions to support those who have been most impacted. Charitable giving at TPF reached a record $4.4 million last year as can be viewed in our most recent audited financials.
As we enter the giving season, we want to remind you that 2021 is a great year to give and invite you to consider a few key ways to increase your giving power at a time when philanthropy has never been more important.
- Give appreciated non-cash assets instead of cash
One of the most powerful tax-smart strategies is donating appreciated non-cash assets held for more than one year. Using this strategy can generally eliminate the capital gains tax you would otherwise incur, if you sold the assets first and then donated the proceeds, potentially increasing the amount available for your giving by up to 20 percent. This strategy can also significantly increase your tax savings.
- Leverage a charitable deduction strategy
You may find that the total of your itemized deductions for 2021 will be slightly below the level of the standard deduction. It could be beneficial for you to bunch or combine 2021 and 2022 charitable contributions into one year (2021), itemize deductions on your 2021 tax returns and take the standard deduction on 2022 taxes. In addition to achieving a large charitable impact in 2021, this strategy could produce a larger two-year deduction than two separate years of itemized deductions, depending on income level, tax filing status, and giving amounts each year.
If you have bunched two or more years of contributions into 2020 and subsequently will take the standard deduction for 2021 you may also consider taking the special $300 ($600 for couples) above the line income tax deduction for charitable gifts this year.
Alternatively, if you plan to itemize deductions and wish to achieve a large charitable impact in 2021 you may choose to give beyond annual deduction limits and carry over the excess amounts up to five tax years by opening a DAF at TPF.
Keep in mind that donors seeking a 2021 tax deduction must have their gift received and processed by December 31, 2021, and some non-cash assets require additional processing time. Read more on deadlines here.
- Give more by donating retirement assets
If you are in or near retirement or reviewing estate plans, you might consider using three tax-smart tips to help maximize your charitable impact this year as part of your overall legacy planning.
- The first tip is to make a Qualified Charitable Distribution (QCD) of Individual Retirement Account (IRA) assets. Whether itemizing deductions or claiming the standard deduction, if you are aged 70½ and older you can direct up to $100,000 per year tax-free from your IRAs to charities through QCDs. By reducing the IRA balance, a QCD may also reduce your taxable income in future years, lower your taxable estate, and limit IRA beneficiaries’ tax liability. QCD requests generally should be initiated by early December at the latest to ensure processing is complete before the end of the year.
- The second tip is to use a charitable deduction to help offset the tax liability of a retirement account withdrawal. If you are over age 59½ (to avoid an early withdrawal penalty) who will itemize deductions for 2021, a withdrawal offers the additional benefits of potentially reducing your taxable estate and limiting tax liability for account beneficiaries.
- The third tip involves converting retirement accounts to Roth IRAs. If you itemize deductions and have tax-deferred retirement accounts, such as traditional IRAs, you can use charitable deductions to help offset the tax liability on the amount converted to a Roth IRA. The primary benefits of a Roth IRA are tax-free growth, potentially tax-free withdrawals (if holding period and age requirements are met), no annual required minimum distribution, and the elimination of tax liability for beneficiaries (depending on the timing). Be sure to talk with your tax and/or financial advisor before deciding to do a Roth IRA conversion.
- Take Advantage of the Favorable Giving Environment
Existing tax laws offer incentives to donors who contribute appreciated non-cash assets held for more than one year. Annual income tax deduction limits for gifts to public charities like TPF, including donor-advised funds at TPF, are 30 percent of adjusted gross income (AGI) for contributions of non-cash assets held more than one year and 60 percent of AGI for contributions of cash.
If you itemize deductions CARES Act allows you to deduct 100 percent of AGI for cash contributed directly to TPF. In addition, the annual deduction limit for cash contributions by a business stays at 25 percent of taxable income instead of reverting back to the 10 percent cap. Donation amounts in excess of these deduction limits may be carried over up to five tax years.
TPF is here to help you create and manage a thoughtful giving plan, no matter where you are in your philanthropic journey. Our number one goal is to help you in any way we can to maximize the benefits of your giving.
Please reach out to our Donor Relations Lead, Pinar Ozyurek ([email protected]) for any questions you may have.
Best wishes for a happy, healthy, and safe holiday season.