“It is in giving that we receive,” as the saying goes. Thankfully, charitable giving is alive and well in our country. “Why America Gives” by Classy is a recent study that indicates 84% of donors plan to give at levels equal to or higher than charitable gifts made in 2020. I suspect it helps that the stock market reached new highs this year, with the Dow exceeding 13%. The COVID-19 Pandemic has also helped redirect people’s attention to suffering across the world. One of the best ways to help is by gifting to charitable organizations specializing in helping people in need.
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Some of the special legislation passed in the December 2020 Coronavirus Aid, Relief, and Economic Security Act (or The CARES Act) provided relief due to the economic effects of COVID-19 by enhancing charitable gifting strategies. If you are interested in making a charitable contribution this year, here are some strategies worth considering:
- $300 deduction for non-itemizers. Usually, if you take the standard deduction versus itemizing your deductions, then you cannot get a charitable deduction for cash gifts. The CARES Act allows taxpayers for 2021 to take an ‘above the line’ deduction for charitable gifts: $300 per individual filer, $600 for joint filers.
- 100% charitable deduction for itemizers. Historically, charitable deductions were restricted to 60% of Adjusted Gross Income (AGI). For 2021, the CARES Act allows you to deduct up to 100% of your AGI for cash contributions to qualifying public charities.
For taxpayers age 70½ or older, you can use a Qualified Charitable Distribution (QCD) to make charitable gifts from an IRA directly to a qualified charity, thus avoiding adding the distribution as income on your tax return. However, special rules apply, so consult with your tax and financial advisor before taking a QCD from your IRA.
The holidays are a time of giving, and there is no better way to celebrate than to give to a local charity organization. The CARES Act has made gifting easier than ever, but be sure to consult with your financial advisor to see which strategy works best with your overall budget.
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Charitable Gifting Ideas
CARES Act provides unique giving strategies:
- $300-$600 deduction for non-itemizers. TIP: Keep good records!
- 100% charitable deduction for itemizers.
Gift directly from your IRA to charity using a QCD.
- Must be 70½ or older
- Avoids reporting the distribution as income on your tax return
- Maximum distribution is $100,000
Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States. He is the author or co-author of six books, including 50 Rules of Success; J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaire; and 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch Group. Consult your financial advisor before acting on comments in this article.
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