Did you know that research has shown that giving money can make you feel better while helping others? A study found the pleasure centers in the brain became activated when people decided to give money to charity. This is traditionally a season of generosity, unofficially kicked off by Giving Tuesday; it’s also a great time to make charitable donations that could reduce this year’s tax bill. As you look for ways to merge your philanthropic and financial goals, it’s helpful to know that the current tax laws offer attractive options.
If you itemize your deductions, in 2021 you can deduct cash donations up to 100% of your adjusted gross income (previously 60% prior to the CARES Act). Even if you take the standard deduction, you can still deduct a portion of your cash donations for 2021: up to $300 for single filers and up to $600 for married filers. And by making several years’ worth of donations this year, you might find it more advantageous to itemize your deductions—allowing you to take a larger gifting deduction than you would if you spread out your giving over a longer period.
Two additional giving strategies that may reduce your tax bill while putting more of your donation to work for the causes of your choice—and they’re especially attractive at a time when many investment portfolios have increased significantly in value.
- You can donate non-cash assets—like stocks and mutual fund shares— directly to a charity or through a Donor Advised Fund (DAF). A DAF is a charitable investment account that allows you to give to nearly any IRS-qualified public charity. When you move stock or mutual fund shares into a DAF first and then gift them to one or more charities, you don’t pay tax on the gains like you would if you sold the asset and then donated the proceeds. A DAF provides an easy way to make several years of donations at one time and you may be eligible for a current-year tax deduction. The DAF also allows you to be strategic in your giving and make gifts over multiple years.
- You can make Qualified Charitable Distributions from your IRA directly to a charity if you are over 70 ½ up to $100,000 per year. The distribution is not taxable to you and can count toward your required minimum distributions (RMDs) which begin at age 72.
As with any financial strategy, the charitable giving approach that’s right for you will depend on your life goals and financial situation. The CERTIFIED FINANCIAL PLANNERTM professionals at Marshall Financial are here to help—not only at year-end, but year-round. Contact us to help you choose the best gifting strategy, set up a DAF, or advise you on making charitable gifts in conjunction with your RMDs.
“Brain Imaging Reveals Joys of Giving.” National Institutes of Health, U.S. Department of Health and Human Services, 6 July 2015, https://www.nih.gov/news-events/nih-research-matters/brain-imaging-reveals-joys-giving.
“What the Giving USA 2020 Report Tells Us about Fundraising.” Neon One, 29 June 2021, https://neonone.com/resources/blog/industry-report-giving-usa-2020/.