A Primer on Charitable Giving
With giving season rapidly approaching, it's smart to begin planning for your year-end gifts in order to maximize the tax benefit you receive for your generosity. This is especially important in 2021, as there are some significant, favorable benefits to charitable giving due to the ongoing COVID-19 situation. Here are some options to consider as we put together your nonprofit strategy for 2021 and beyond:
Cash – Giving cash is the most straightforward way to donate. Typically, your deduction equals the amount of your gift, subtracting the value of any goods or services you get in return. Always request a receipt for your contribution when giving in cash, no matter the amount.
Appreciated Securities – Donating stocks or other securities that have appreciated in value offers a tax benefit to you and the nonprofit organization. When you donated appreciated securities, you are off the hook for any capital gains when the security is sold, and the nonprofit is tax-exempt, so they do not have to pay taxes on the capital gains when the security is sold. Additionally, securities held for more than one year and that have appreciated in value qualify for a deduction of their full market value (up to 30% of AGI)
Donor Advised Funds – This involves gifting cash or securities to a nonprofit organization through a giving account. You’re allowed to make recommendations as to how your money is allocated, though the recipient is not legally obligated to oblige (which is why it’s called “donor advised” and not “donor directed”). You receive the maximum tax benefit and can arrange for the account to continue paying out after your death.
Qualified Charitable Distributions – For those individuals who are over age 70½, IRA assets can be donated tax-free from the IRA owner to a non-profit. For those who are taking annual Required Minimum Distributions (RMD), a Qualified Charitable Distribution can reduce or eliminate the taxable RMD. Each IRA owner can donate up to $100,000 per calendar year using Qualified Charitable Distributions.
Bequests or Trust Gifts – making a bequest in a will or designating a nonprofit as a beneficiary of a trust are ways to donate to a nonprofit upon your death. These gifts can specify either a dollar amount or percentage of total assets, giving you flexibility to contribute to nonprofits in a way that is meaningful to you.
Legacy Gifts – Making a nonprofit the beneficiary of a life insurance policy, annuity policy, or IRA account can be a powerful way to contribute to a nonprofit upon your death. This can lower your estate tax liability and, if the asset is taxable (such as an IRA) can reduce taxes that your heirs will be required to pay. A Payable on Death (POD) or Transfer on Death (TOD) designation can be utilized to donate bank or brokerage account upon the owner’s death.
Charitable Gift Annuities – Donating liquid assets (such as cash or other liquid assets) in exchange for a stream of income over a specified term or your lifetime, with the charity receiving the remaining funds at the end of the term or your death.
If you aren't sure what the best option is for you, please ask! I am here to support you in your charitable giving and help put together an annual or multi-year plan for your regular charitable gifts in order to optimize the tax benefit of your generosity.