Tax changes and year-end giving

Increase your charitable giving in 2021 while decreasing your taxes. There are some unique charitable giving opportunities available only in 2021 and other tax-wise giving strategies for you to consider.

Some of the favorable tax changes made by the CARES Act, passed March 2020, have been extended by Congress for 2021, only.

1. For those who itemize their deductions in 2021, the cap on annual giving for gifts of cash is 100% of adjusted gross income (AGI) instead of the usual 60% of AGI limit. That means a donor who uses all of her available deduction for qualified gifts would pay no federal income tax in 2021.
   
   Tip: This may be the year to convert a traditional IRA to a Roth IRA. Give a gift of cash to a public charity at the same time, thus offsetting the income tax liability of the Roth conversion using this maximum deduction for cash gifts.
   
   
2. Donors who claim the standard deduction still have an above-the-line deduction for charitable gifts.  The amount remains the same for an individual ($300) but married couples filing joint returns can deduct up to $600, an increase from last year.  

In both of these cases, the gift must be cash and made to a public charity. While gifts to donor-advised funds (DAFs) do not qualify, you can still give to the Community Foundation and receive this special tax treatment by giving to other types of funds, including the COVID-19 Response and Recovery Fund, the Community Foundation Unrestricted Fund, a scholarship fund, designated fund or field of interest fund.

Other tax-wise giving strategies:

Gifts of appreciated stock. While the stock market has been volatile this year, it is ending on a high note in many sectors. Gifts of appreciated stock owned for more than one year offer great tax benefits and can be made to donor-advised funds (DAFs).

With a gift of stock or mutual fund shares, you avoid all capital gains tax, which enables you to give up to 20% (for some, 23.8%) more than if you sold the stock and donated the cash proceeds. In addition, the charitable deduction is for the full fair market value. This means you receive a deduction on income that was never taxed. This same giving strategy applies to other appreciated assets as well, such as real estate, mutual fund shares, and closely-held business interests. 

Consider an IRA Charitable Rollover.  There is no longer a required minimum distribution (RMD) waiver. As a result, anyone age 72 or older as of December 31, 2021, must take an RMD by year-end (unless this is your first RMD, in which case you have until April 1, 2022). 

You can meet this RMD requirement and support philanthropy through an IRA Charitable Rollover gift.  The IRA Charitable Rollover gift essentially allows you to have a charitable deduction for a gift even when you use the standard deduction. 

If you are 70½ or older, distributions of up to $100,000 can be made from a Traditional (or Roth) IRA each year to a public charity and the amount will NOT count as income on your tax return.  Unfortunately, the tax laws still do not allow Rollover gifts to donor-advised funds but there are other Community Foundation funds that qualify for this special type of gift (see above).

Bunch your gifts.  If you have a donor-advised fund at the Community Foundation, you can use it to “bunch” your gifts. With this strategy, you put a larger amount in your fund this year than you might otherwise do so that you “beat” the standard deduction and can itemize your charitable gifts. Then you make grants out of your donor-advised funds to your favorite charities over the next few to several years.  

The Community Foundation can help.  Cash gifts can be made up until the last day of the year but the other strategies need a little more time. We encourage you to start your planning now!

If you or your professional advisor have questions or need more information, I would be happy to assist. Please reach out to me at aocarroll@cfgreateratlanta.org or 404-333-0241.