Why Do People Give to Charities at End of Year?
The landscape for charitable giving has undergone a lot of change in recent years. More changes are likely around the corner. This year, a more intentional approach to year-end giving may be needed, according to the article “How to Make the most of Year-End Charitable Giving” from Wealth Management.
From the continuing pandemic to natural and humanitarian disasters, the need for relief is pressing on many sides. Donors with experience in philanthropy understand charitable giving as part of a tax strategy, part of providing the essential support needed by non-profits to keep operating and respond to emergencies and, at the same time, ensure their charitable dollars are aligned with their family values and missions.
For the tax perspective, changes resulting from the Tax Cuts and Jobs Act of 2017 left many nonprofits harshly impacted by the doubling of the standard deduction, which gave fewer people a financial incentive to donate. The question now is, could the latest round of proposed changes spur greater giving?
Amid all of these changes, sound and stable giving strategies to charities remains the wisest option.
The CARES Act encouraged individual giving during times of hardship, and tax breaks were extended in 2021. However, certain incentives are now closing, such as the ability to deduct up to 100% of adjusted gross income for cash gifts made directly to public charities.
The Build Back Better Agenda proposes increasing the long-term capital gains tax rate for individuals with more than $400,000 of taxable income, and married couples filing jointly with more than $450,000 of taxable income, to 25%, plus a 3% surcharge to income of more than $5 million. This would make charitable giving more attractive from an income tax perspective. However, this bill has yet to be passed.
Consider the following strategies if you are a person that wants to engage in charitable giving:
Qualified charitable distributions. RMDs must be taken in 2021. For donors taking a standard deduction, a qualified charitable distribution is a possible option. If you are 70½ and over, you can donate up to $100,000 from an IRA. This satisfies the RMD, as long as the gift goes directly to a charity, not to a Donor Advised Fund.
Contributions of appreciated stock. To make charitable gifts in the most tax-efficient way possible, a donation of appreciated stock during life is a smart move. Donors receive a charitable income tax deduction (subject to AGI limitations) and avoid capital gains tax. Also, for those persons who may have a future taxable estate, charitable giving during life effectively removes these assets from your taxable estate without a reduction in your lifetime exemption.
Charitable bequests. The uncertainty around income tax reform includes estate taxes, and pro-active individuals are now reviewing their estate plans with their estate planning attorneys.
Funding a Donor Advised Fund (DAF). A DAF allows donors to make a charitable contribution of assets to a tax-free investment account, from which they can direct gifts to the charities of their choice. The contribution to the fund provides the donor with a charitable income tax deduction in the year it’s made.
If you enjoyed this article, “Why Do People Give to Charities at End of Year?”, you can learn more about how people can make charitable giving a component of their estate plans by reading these articles: Charitable Contributions to Reduce Taxes and Charitable Planning and What’s a QTIP Trust ? and Will a QTIP Trust Work for a Blended Family? and How to Keep the Vacation Home in the Family
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about how taxes may impact your estate planning
Reference: Wealth Management (Oct. 11, 2021) “How to Make the most of Year-End Charitable Giving”