5 questions to guide your year-end charitable giving
‘Tis the season (already!) for evaluating your 2021 generosity practices and making solid year-end charitable giving decisions. Are you on track to meet your goals? We are currently helping clients look at their donations and work through year-end giving strategies. Our conversations cover important questions, including:
- If you are married, are you and your spouse on the same page when it comes to year-end charitable giving?
- Do you want to give anonymously? (If so, we can help you give through a Donor Advised Fund.)
- Do you want your gift restricted to a particular purpose, or are you open to the organization using it however they see fit?
- Are you requesting or expecting to get a report back on the impact of your gift?
And, finally, our area of particular expertise:
- Do you know how your year-end charitable giving decisions will affect your tax projections?
There are five specific questions we use to walk year-end givers through the charitable giving tax maze. The first is a two-part simple yes/no question:
- Are you over 70.5 years old? Do you have an IRA?
If you answer no to both, you can skip this section. If yes, did you know you can give up to $100,000 a year to charities straight from your IRA, tax-free? A Qualified Charitable Distribution (QCD) is a great way to give efficiently and avoid paying taxes on the distribution. If you’re in this category and wanting to make year-end donations, start by giving from your IRA.
- Are you taking the standard deduction?
2021 Standard Deduction Amounts
| Single or married and filing separately | $12,550 |
| Heads of household | $18,800 |
| Married, filing jointly, or qualified surviving spouse | $25,100 |
| 65+ years old | $1,350/person added to standard amount |
If your itemized deduction totals are above these limits, jump down to the next question. If you take the standard deduction (like 90 percent of taxpayers) you can still claim an above-the-line deduction for cash donations of up to $300 per person ($600 for married couples filing jointly). Give to your favorite charities, keep your receipts, and claim that deduction. It’s that simple. (Side note: QCDs aren’t itemized, so you can give through your IRA and still take the standard deduction.)
- If you are itemizing, how do your donations compare to your income?
To encourage people to donate to struggling charities, last year the CARES Act made it possible to deduct up to 100 percent of your adjusted gross income (AGI) with charitable cash (not in-kind) contributions. (The limit used to be 60 percent.) If you have excess resources to give, don’t wait. Accelerate your generosity plan and give now! If you give above your AGI this year, the excess will carry forward for up to five years. There are some tricky details on this deduction (especially when it comes to things like donor advised funds), so make sure you talk to us about the nuts and bolts.
- Can a Donor Advised Fund help your year-end charitable giving strategy?
As we’ve discussed before, Donor Advised Funds have multiple benefits, including being able to time deductions, minimize paperwork and give anonymously. They are a key part of many of our clients’ generosity plans and a tool we keep in our back pocket for certain year-end giving situations.
- Are there state tax credits that align with your giving goals?
Often overlooked, many states have programs with significant tax credits for itemizing givers. For example, Kansas taxpayers can get a 50 to 70 percent credit on donations to 26 approved nonprofits back in a state tax credit through the Community Service Tax Credits program. Missouri givers can get a large portion of their donations to qualified nonprofits credited to their state taxes through a variety of programs, including ones administered by the Missouri Department of Social Services. Again, make sure you talk to a trusted wealth advisor — like us! — to make sure you’re not missing out on big tax benefits.
Need help sorting through your year-end charitable giving options? Get in touch with one of our experienced wealth advisors, and we’ll help you make your generosity decisions wisely.
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