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5 Charitable Giving Strategies

Sep 30, 2020 4 min read Kate Ashford

Key takeaways

  • Gifting investments can be a win-win—no tax owed, and you may still get a deduction.
  • Bunching donations can help you itemize.
  • A donor-advised fund lets you take a deduction now and donate over time.

 

Americans' penchant for charitable giving has taken a downward turn in recent years. According to Gallup Opens in new window, those who make at least $100,000 a year are giving 5% less in 2020 than they did in 2017, and donations among the less well-off have fallen far faster. One reason lies in the economic downturn caused by the COVID-19 pandemic. But another may be a recent tax law change that made it harder to snag a break on contributions.

 

 

Still, if you're charitably inclined (and able), there are a variety of ways to donate. But to make the most of your donations, the 2017 tax law demanded that you be more strategic. That’s because the standard deduction for 2020 is $12,400 for single filers ($24,800 for married couples who file jointly). Because you need to itemize to claim a charity tax deduction, those thresholds make it tougher than it used to be. (Note that for 2020 only, you can take up to a $300 deduction for charitable cash contributions, whether or not you itemize.)

Despite this hurdle, you can make the most of your charitable giving and reap the tax benefits. Try these strategies the next time you're thinking about your favorite causes.

 

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—this is the big win—you won't owe any capital gains tax on the appreciation. (The charity itself doesn't owe capital gains taxes due to its nonprofit status.)

One caveat: The charity must be set up to receive securities as donations, so get in touch with them to make sure they can accept that kind of gift. You'll want to start this process a few weeks before December 31 to ensure it's completed by the end of the year.

 

Give away your losers

Conversely, if your portfolio has gone south, 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. This way, you have a capital loss deduction, which lowers your net (taxable) income.

For example, if you had long-term capital gains of $10,000 and losses of $8,000, you can report a net gain of $2,000. On the other hand, if you have more losses than gains for the year, you can claim up to $3,000 of those losses and deduct them against other types of income, including salary. If you have more than $3,000 in losses, you can hold on to those and apply them in future years. By donating the proceeds of investments that have fallen in value, if you can itemize you'll realize both the capital losses and the deduction for the current value of the investments.

 

Donate your required minimum distribution

If you're over age 70½, you can redirect some of your required minimum distributions (RMDs) toward a nonprofit instead. 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 a workplace retirement plan like a 401(k). If you withdraw funds and then donate them, they'll still be considered income. The caveat: You won't owe income taxes on the donation, but you can't claim a deduction for it. (Even though the starting date for taking RMDs recently rose to age 72, the age for qualified charitable distributions stayed at 70½.)

 

Bunch your donations

These days you'll need to clear a higher hurdle for charitable donations before you can itemize. One strategy: “bunching” up donations to every two or three years so you can give more at once. For example, instead of giving $5,000 this year and $5,000 next year, wait and give $10,000 next year, or $15,000 the year after that. The boost in the amount of your donation might get you over the itemization hump at tax time.

 

Open a donor-advised fund

Did you get a big bonus or inheritance this year? Or are you simply dealing with uneven income and have a lot to give away? 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 lets you dole out the money over time. You can often open a donor-advised fund for as little as $5,000. Even if you're not sure what charities you're targeting, you can park the money in a donor-advised fund and distribute them at your leisure.

 

What you can do next

Talk to your financial professional about how tax law changes are affecting the way you'll itemize, and whether you'll need to change tactics to continue taking the charitable deduction. If your portfolio is doing well—or not—your advisor can suggest ways to gift securities to make the most of what you've got. Discuss your goals and what you're hoping to accomplish, and together you can make a solid giving plan.

Footnotes

Kate Ashford is a freelance journalist who writes about personal finance, work and consumer trends. She has written for BBC, Forbes, LearnVest, Money, Real Simple and Parents, among others.

 

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