Tax Benefits of Giving

DANIEL HARRIS

CPA, MAC, Senior Manager Hungerford Nichols CPAs + Advisors www.HungerfordNichols.com

What do we need to know about philanthropic giving in 2020?

November and December are popular months to make charitable donations. Partly because there are many holidays this time of year and people are feeling generous, but it is often also due to tax considerations as well.

So what are the key tax considerations related to giving this season?

• Most charitable contributions only get deducted on Schedule A, “Itemized deductions.” This means that your total contributions get added together with state and local taxes, mortgage interest, and possibly some medical expenses. If the combined total of all these expenses is greater than the amount of your standard deduction ($12,400 for single filers, $18,650 for Head of household filers, and $24,800 for joint filers) then you claim these total itemized deductions instead of the standard. Since roughly 90% don’t have more itemized deductions than the standard in any given year, they may not receive tax benefits for donations.

However, one useful strategy around this problem is to bunch two years of donations into one calendar year. You could make both your 2020 and 2021 planned donations late this year, donate less in 2021, and then donate a lot again in 2022.

That way you can get the tax benefits at least every other year. • For 2020 only, there is a one-time opportunity to claim $300 of charitable contribution deductions on your tax return, regardless of whether you have enough itemized deductions. Thus, if you have not donated anything yet in 2020, it would be ideal to do so now rather than waiting for 2021. • If you own stock or other investments that have appreciated in value, it is typically best to donate the stock directly to the taxexempt organization rather than sell it and then donate cash. Donating stock directly still gives you a deduction for the full fair market value and it helpfully prevents you from owing capital gains tax on the gain you would have realized from selling it. • For those with large amounts of planned donations in future years (typically $10,000 or more), you can setup a donor advised fund that allows you to contribute to the fund and receive a deduction now, even if you don’t determine which charity will receive the eventual donation until future years. • It is worth noting that for 2020 only, no one has to make required minimum distributions (RMDs) from retirement plans, so it is often best to avoid doing this right now. However, in 2021, individuals aged 72 or older will have to resume taking

RMDs. A classic strategy to maximize tax benefits from this in 2021 is to have your RMD sent directly to the tax-exempt organization rather than collect the cash and then transfer the money to the charity.

This way, the RMD never gets recognized in your income so you effectively get the equivalent tax benefit that you would from a deduction. Plus your adjusted gross income is lowered, which increases the chance you’ll qualify for various tax credits.