Giving to charitable organizations is a high priority for many. During retirement in particular, the feeling of giving back, and contributing to help those in need can become an increasingly important part of life. The tax benefits while very important, are often a secondary consideration, but something very useful to plan for.
Read on to prepare with nine details to keep in mind before jumping in to your charitable giving - and find out 2 great tax breaks that don't require itemizing your deductions.
1. Up to $600 'Above the Line' Deduction Available in 2021
For those who don’t itemize their deductions, the CARES Act extension expanded above-the-line charitable deductions. The CAA (Consolidated Appropriates Act) extends the CARES Act’s allowance for up to $300 of an individual taxpayer’s charitable contributions to qualify as an above-the-line deduction. Married couples who file joint returns can claim up to $600 as a deduction.
2. Age 70 1/2 or Older? You may give directly from your IRA.
Distributions from an IRA are typically taxable at your highest tax rate - unless you are eligible to send a distribution directly to a charitable organization. Generally, a qualified charitable distribution is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. See Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) for additional information.
Your qualified charitable distributions can satisfy all or part the amount of your required minimum distribution from your IRA. For example, if your 2021required minimum distribution was $10,000, and you made a $5,000 qualified charitable distribution for 2021, you would only have had to withdraw $5,000 (as taxable income) to satisfy your 2021 required minimum distribution. (Although the RMD start age is now 72, QCD age is still 70 1/2)
3. If You Itemize, You May Be Able To Deduct More.
For those who itemize their deductions, the charitable contribution limitation has been extended for 2021. The limitation for cash contributions, formerly set at 60%, has now been raised to 100% of an individual’s adjusted gross income (AGI). This means donors who itemize their deductions can now give more before reaching their AGI limitation. In addition, any giving beyond the 100% AGI limitation may be carried over and used in the next five years, but the enhanced deduction expires after 2021.
4. Get the Facts Before You Donate
Understanding the charity’s mission and what their true purpose consists of is key when contributing to their organization. Without determining the facts behind where your donation is really going and what it is contributing toward you may ultimately be given to the wrong cause.
Knowing the impact of the organization you’re interested in and what the outcomes are of their programming, might determine what and how much you decide to give. Starting your research by using websites such as Guidestar and Charity Navigator will give you a real understanding of what makes them tick.
5. Verify the Group’s Non-Profit Status
Along the lines of doing your research prior to contributing charitably, you should ensure that your donation is tax-deductible. You must donate to a qualified charitable organization and they must be tax-exempt 501(c)(3) or fall under Section 170(c) of the IRC.1
Many charitable organizations qualify for tax-deductible donations, but not all, making it important to know whether your chosen group qualifies. You may search in the IRS online database for all of the acceptable charities, or check to see if the organization is designated with 501(c)(3).
6. Donate to the Causes That Mean the Most To You
These might be considered “efficient organizations” or groups that are impactful not only socially but to you as an individual. It’s very likely you already have a few organizations in mind based on your experiences and your network. If not, connect with your friends and family to learn more about their charity interests and if these align with what you’re passionate about.
Doing web research or collecting news articles associated with causes you’ve already chosen will often highlight similar organizations that are also doing great work.
7. Donate More Than Just Cash
While giving a cash value might feel like the most straightforward way to contribute, there may be other forms of assets you can donate in order to get the most back. Depending on the accessibility of your assets, contributions may include forms of property, travel expenses, uniform costs or appreciated assets.
Being creative with your donations offers the opportunity to rid yourself of items that you no longer use but could mean the world to someone with different needs.
8. Feel the Benefits
Giving to those in need and being a voice for organizations that spark passion within you is an amazing feeling. Being aware of the additional benefits that being charitable may offer can be a close second.
9. Check To See If Your Employer Matches
Very often companies encourage their employees to give back to their communities by matching contributions up to a certain amount. It’s important to speak with your human resources department about these details prior to contributing in order to keep your priorities and your finances in order.
This content is developed from sources believed to be providing accurate information, and provided by Woodstone Financial. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.