It’s the season of giving. Of course, you may be thinking of the gifts you’re planning to give to your loved ones and friends, but you may well want to extend your generosity beyond your immediate circle to support charitable organizations whose work you support. If you can afford to donate to charitable groups, your gifts will be much appreciated in these challenging times. And when you give, you may also receive something in return: tax benefits.
To understand the tax advantages of charitable giving, let’s quickly look at a little recent history. Up until a few years ago, many people itemized deductions on their tax returns, including gifts to qualified charitable organizations. But under changes in tax laws, the standard deduction was almost doubled. (In 2021, it’s $25,100 for married taxpayers filing jointly and $12,550 for single taxpayers.) As a result of these changes, far fewer people are itemizing their deductions. But by being strategic with your giving, you can find tax benefits regardless of your filing status,
If you itemize, you may be able to donate investments directly to a charity and take a tax deduction for the current value of the investment (with limits based on your adjusted gross income). Even if you don’t itemize your income taxes, you could still avoid the capital gains taxes you’d have to pay if you sold the investments, provided you’ve held them for at least a year. This avoidance could be significant if your stocks have appreciated greatly over time, and donating investments provides a benefit over giving cash if you take the standard deduction. Of course, before you donate stocks to a charitable group, you’ll want to review the effect your gift has on your portfolio and your overall financial strategy.
You might also receive one other type of charitable giving tax benefit if you take the standard deduction. Specifically, you can take a $300 deduction (or $600 for married couples filing jointly) for charitable gifts. This COVID-19 relief measure is only available through the 2021 tax year, so you’ll have to make the gift before the end of the year.
And if you’re 70½ or older, you may be able to take advantage of another charitable giving technique, known as a qualified charitable distribution, which allows you to transfer up to $100,000 per year from an IRA to a charitable organization if you don’t need the money to meet your retirement needs. Some, or perhaps all, of this money may come from the taxable withdrawals – known as required minimum distributions, or RMDs – you’re required to take, starting at age 72, from your traditional IRA. (A Roth IRA does not require you to take RMDs.) By making this move, you can exclude the RMD from your taxable income. However, before taking this action, you’ll want to consult with your tax advisor.
Supporting a worthy charity is a good way to help celebrate the holiday season. And if your generosity earns you some tax benefits, it’s a win for everyone involved.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Edward Jones Trust Company and Edward Jones, and their employees and financial advisors, are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.
Edward Jones, Member SIPC.
Local Edward Jones financial advisors include Vicky Kirby (256-845-2610), Matt Guice (256-844-6726) and John T. Davis (256-845-4560).