November 2021
College and Tax Planning

While each of us has our own very personal motivations for, and approach to giving, collectively Americans continue to be the world’s most charitable nation. In 2020 alone, annual charitable gifting in the United States totaled over $471 billion (with gifts by individuals comprising 69% of that total).  And even though income and estate tax advantages aren’t the main reasons driving most people’s philanthropy, they’re nevertheless valuable benefits that shouldn’t be overlooked. However, to qualify for an income tax deduction on a charitable gift of cash or property, you need to:

• Itemize deductions on your income tax return;

• Meet gift documentation/substantiation requirements; and

• Make the gift to a qualified charitable organization.

One small victory for those who choose not to itemize is that the CARES Act and subsequent legislation includes a special $300 charitable tax deduction for both the 2020 and 2021 tax years — and for 2021, married couples filing jointly can deduct up to $600. But what if you want to give considerably more than that to charity? There are three relatively simple strategies you may want to consider.

1. The use of charitable gift “bunching” can be used to accomplish philanthropic goals. The $10,000 cap on deductions of state and local income and real estate taxes could bring the standard deduction into play for high-net-worth households who might never have considered it before. The bunching technique may benefit donors whose non-charitable itemized deductions fall below the new higher standard deduction, so long as the donor has sufficient taxable income to fully deduct several years of charitable contributions in a single year, given deduction limits. Bunching involves consolidating tax-deductible charitable contributions that would normally be made over multiple years into a single tax year. In the consolidated year, the donor contributes to a charitable giving vehicle and receives an immediate tax deduction through itemizing deductions on his or her federal tax return.

2. The IRS allows you to make tax-free distributions directly from your taxable IRAs to any 501(c)(3) registered charity rather than taking your required minimum distributions (RMDs)? It’s an opportunity to use RMDs you may not need for income, and instead fund a sizable gift (up to $100,000 per taxpayer per year) to one or more qualified charities. This Qualified Charitable Distribution (QCD) provision is only available to taxpayers who are age 70½ or older, and provides a way to accomplish three goals in one: Satisfy your annual taxable RMD; support one or more charities that are important to you; and avoid having to pay income taxes on your RMDs, as well as the potential that your RMDs might push you into a higher tax bracket and/or prevent phaseouts of other tax deductions. 

3. Gifting appreciated stock is one of the most effective means of tax savings available. Your gift of appreciated stock is fully deductible up to 30% of your adjusted gross income. For example, if your adjusted gross income is $100,000, up to $30,000 of long-term appreciated stock and other capital gain property may generally be deducted, although high-income donors may be subject to a partial phase-out of itemized deductions. Any excess can generally be carried forward and deducted over as many as five subsequent years. Once again, the gift must be to a qualifying charity; family members do not qualify!

For gifts to family members, any individual may make a $15,000 contribution to anyone without a tax impact to either party.  An exception to this rule is if you are making your gift using appreciated stock.  Unlike the charitable organization, the recipient of your gift retains your original cost basis and of course, your gift is not tax deductible!  Gifts larger than $15,000 may also be made but will impact your lifetime tax exemption from federal estate taxes and require a special tax form be completed in order for you and the recipient to avoid taxes.  As always, we encourage you to consult with your cpa to make sure you are accurately reporting your gifting to avoid any unexpected surprises from the IRS!

If you are looking to make gifts of cash or stock before year-end, please reach out to us at the office so we can assist you in determining the best gifting strategy for your plan!

If you have questions, please contact us.

MARKET UPDATE
FINANCIAL PLANNING
401(K) ALLOCATION
GRAPHIC OF THE MONTH

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