Americans’ have a penchant for charitable giving. Unprecedented developments in 2020 including the global pandemic, the ensuing economic crisis, and efforts to advance racial justice created intense, widespread need and significantly increased the demand upon nonprofit organizations. Remarkably, generous giving coupled with stock market turnaround in the final months of the year boosted contributions. As a result, 2020 was the highest year of charitable giving on record1.
With a plethora of ways donate, we suggest looking into these strategies the next time you’re thinking about your favorite causes. Some approaches to consider:
Give Away Your Winners
When you think about how to raise money for charity, consider your investment portfolio. If you’ve got investments that have gone up in value, you can give them as a gift to the organization of your choice. When you donate stocks, you’ve held for more than a year and that have gone up in value, you get a deduction on the amount of their current value, and you won’t owe capital gains tax on the appreciation. However, the charity must be set up to receive securities as donations.
Give Away Your Losers
Conversely, if your portfolio has declined, you might think about selling the lemons and donating the proceeds to charity. To do this, first sell the stock(s) so you have a realized loss, then give the money to charity. This way, you have a capital loss deduction, which lowers your net (taxable) income.
Use a Qualified Charitable Distribution
A qualified charitable distribution (QCD) is a withdrawal from an IRA that’s paid directly to a qualified charity. The account owner must be at least 72 years old at the time the distribution is made. One of the benefits of using a QCD is that the withdrawal counts toward required minimum distributions (RMDs). You can give up to $100,000 this way without owing income tax on the money, but the money must come directly from an IRA or workplace retirement plan like a 401(k). The caveat, you won’t owe taxes on the donation, but you can’t claim a deduction for it.
Today you’ll need to clear higher hurdles for charitable donations before you can itemize. Consider bunching up donations to every two or three years so you can give more at once. The boost in the amount of your donation might get you over the itemization hurdle at tax time.
Create a Donor-Advised Fund
A donor-advised fund essentially acts like a mini foundation. It allows you to take the deduction in the year you create the fund, but it lets you distribute the money over time. Even if you’re not sure what charities you’re targeting, you can keep the money in a donor-advised fund and distribute them at your leisure.
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