Keep this in mind when donating
With holiday and end of year charitable giving season upon us, the IRS has an important reminder: Recent legislation extended some temporary tax changes through 2021 — two of which are likely to impact a lot of filers.
• Deduction for individuals who don’t itemize. Usually, taxpayers who take the standard deduction cannot deduct their charitable contributions. The law permits taxpayers to claim a deduction on their 2021 federal income tax returns for cash contributions they made to certain qualifying charitable organizations. The limit is $300 for single filers and $600 for those who are Married Filing Jointly.
• Deduction for individuals who itemize on eligible cash contributions. Pre-COVID, taxpayers who itemized could claim a deduction for charitable contributions to qualifying organizations, but the deduction was limited to 20% to 60% of adjusted gross income(AGI), depending on the type of contribution and the type of charity. The law now allows taxpayers to apply up to 100% of their AGI, for calendar-year 2021 qualified contributions. You need to choose to do this on your 2021 Form 1040 or Form 1040-SR.
More money tips for giving
QCD >>: If you are over age 70 1/2, you may want to consider a Qualified Charitable Distribution (QCD). This technique allows you to make a grant of up to $100,000 directly to an eligible charity (not to a private foundation, nor to a charitable supporting organization or a donor-advised fund) from your IRA, without paying tax on the amount of the donation. While you are not entitled to claim a charitable contribution, you are not paying taxes on the money withdrawn, so this could be a good idea for those who hold a lot of wealth in retirement accounts and/or those who do not need to use the cash flow from their Required Minimum Distributions.
INVESTIGATE THE CHARITY’S FINANCIAL HEALTH >> Once you have confirmed that the group is legitimate via the IRS.gov Tax Exempt Organization Search, check out how much of your donation goes to supporting programs, versus overhead. The Better Business Bureau’s (BBB) Wise Giving Alliance, Charity Watch, Guidestar, Charity Navigator and GiveWell are all helpful resources. GIFT YOUR WINNERS >> Many assets have soared this year, which makes it a great time to gift appreciated securities from a taxable investment account. Doing so allows you to write off the current market value (not just what you paid) and escape taxes on the accumulated gains. Ask the charity about how to send the assets and confirm all receiving account numbers.
CONSIDER DONOR ADVISED FUNDS (DAFS) >> If you want to better manage your charitable giving, check out DAFs. These accounts allow you to contribute cash, appreciated assets, or investments and grant to a charity at any time; write off the current market value (not just what you paid) to escape taxes on the accumulated gains; and then recommend grants to your fa
vorite charities whenever makes sense for you. DAFs also allow you to give in a year when you have had higher than expected income, or when you are trying to bunch deductions to qualify for itemizing deductions.
WATCH YOUR TIMING >> If you are planning to send a check, your payments must be postmarked by midnight Dec. 31 — writing “December 31 on the check does not automatically qualify you for a deduction; and pledges aren’t deductible until paid. Donations made with a credit card are deductible as of the date the account is charged, so if you are late in the process, you probably should stick
to credit cards.
KEEP GOOD RECORDS >> For any cash or property valued at $250 or more, you must have a receipt (bank record, payroll deduction or written communication) identifying the organization, the date and amount of the contribution and a description of the property. For text message donations, flag the telephone bill with the name of the receiving organization, the date of the contribution, and the amount given.
Jill Schlesinger, CFP, is a CBS News business analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@ jillonmoney.com. Check her website at www. jillonmoney.com.