With today’s coronavirus crisis, giving to charity is even more important than ever. In a time of such great need, how can you create a charitable gift strategy that reflects your values, helps those who need it most, and stretches your charitable dollars most effectively? The need is so great that it can be overwhelming to know where to begin.You may be unsure who to give to and uncertain about some of the new tax rules that impact charitable giving. We suggest a three-pronged approach to charitable giving to help you achieve your goals.
- What charities should you give to?
- What new tax provisions can help stretch your charitable dollars?
- What tried and true tax tips will help you make tax-efficient gifts that stretch your charitable dollars farther?
What charities should you give to?
There are so many worthy charities that need help right now—it can be hard to decide where to give. The following questions may help you create a framework for your giving.
- Is a charity you already give to particularly impacted by COVID-19? There may be a reason to increase giving to that charity, or to target a specific program related to the COVID crisis. For example, a local hospital you have supported for years may have set up a fund to benefit its health care workers and their families.
- If you aren’t sure what charity to give to, have you looked at what charities in your community are doing? Many local community foundations have established COVID-19 emergency funds. And grants made by large local foundations may also provide guidance on where the greatest community need is.
- Have you set up a budget for charitable giving? No matter the size of your gifts, having a budget often makes it easier to prioritize your giving. It can also help you allocate your giving between the COVID-19 emergency and other charities you normally support. For example, the needs of arts and environmental organizations may seem less pressing during a pandemic, but those organizations also need funds, and many of their employees may need help.
What new tax provisions can help stretch your charitable dollars?
Charitable giving is first and foremost about the generosity of donors—not about the taxes. But a tax benefit can help you stretch your charitable dollars. Two provisions in the recently enacted CARES Act provide additional benefits this year for cash gifts to public charities, such as universities, hospitals, and relief organizations like the Red Cross.
- For the majority of taxpayers who do not itemize, there is now a $300 above-the-line deduction in addition to the standard deduction, but only for cash gifts to public charities.
- For itemizers, the usual deduction limit for gifts of cash to public charities—60% of adjusted gross income (AGI)—is increased to 100% of AGI, so a very generous donor can take a deduction for the full amount of gross income given to charity.
Note that these two tax benefits apply only to gifts of cash to public charities. And they do not apply to cash gifts to donor advised funds, or supporting organizations, even though they qualify as public charities.
What tried and true tax tips will help you make tax-efficient gifts that stretch your charitable dollars farther?
One of the most efficient charitable gifts is a donation of appreciated stock held for more than a year. Whether or not you itemize deductions, such gifts avoid capital gains taxes. And if you do itemize, you will get a full fair market value deduction. Remember, though, to get an acknowledgement of your gift from the charity if your gift is over $250. And if you’re donating to a private foundation, make sure the stock is publicly traded.
If you are over age 70½, making distributions from an IRA directly to a qualified charity can be as good as or better than a deduction:
- You avoid the ordinary income tax you would otherwise pay on the distribution, giving the same effect as a deduction.
- You can make tax-free distributions from IRAs to charity even though you are not required to make IRA withdrawals until age 72.
- With no required minimum distribution this year, if you would ordinarily have taken a withdrawal, you may want to give some or all of what you would have withdrawn directly to a qualified charity. That distribution will still be tax free and it will reduce the amount in the IRA that must be distributed in the future.
With a little bit of planning, you can identify charities in this difficult time that can truly benefit the community and carry out your values. And you can take advantage of some new tax breaks, while also using tried and true ways to make your giving efficient.
For more charitable giving strategies, please visit Putting the “Family” in Family Philanthropy.
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought. There is no assurance the any investment, financial, or estate planning strategy will be successful.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that, while this article is not intended to provide tax advice, in the event that any information contained in this article is construed to be tax advice, the information was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any matters addressed herein.