2020 was a year of challenges, but it was also one of generosity. A great example of this is the $2.47 billion in charitable donations on Giving Tuesday last year, a 29% increase from the year before, despite the COVID-19 pandemic. It’s incredibly inspiring to see that, even when we’re facing adversity—and maybe especially so, we always find ways to come together and give back.
In 2021, we have the opportunity to continue that trend, helping charitable organizations spread their reach even further. As you potentially donate throughout this year, we have a few considerations to help you get the most out of your charitable giving.
1. Verify that you’re donating to a reputable charity.
To make the biggest impact with your contribution, you’ll want to make sure you’re donating to a reputable 501(c)3 organization. You can verify that your chosen charity fits this description by referencing online resources, such as Charity Watch, Charity Navigator, GiveWell, and BBB Wise Giving Alliance.
2. Consider recent tax law adjustments.
Last year, we saw two notable changes to the tax law as it relates to charitable giving. The first is a $300 above-the-line deduction that is now available for those who do not itemize. This deduction was available in 2020 for each individual taxpayer; however, for 2021, those filing jointly can now deduct up to $600.
Second, it’s important to note that the penalty for overstating your charitable contributions has increased significantly to 50% of your deduction amount (rather than the 20% in years prior). For this reason, it’s essential to keep a close record of your charitable contributions in case of an audit.
3. Set up a donor-advised fund (DAF).
We often tell clients to think about donor-advised funds as a charitable checking account. DAFs allow you to give directly to your favorite charities with all the benefits of a private foundation, meaning that it requires less time commitment. This type of fund allows you to take an immediate deduction when you make your investment (subject to income limitations) while also giving you the power to give to multiple charities over time. You can often have your DAF set up online so that directing where your fund’s proceeds is as easy as a click of your mouse.
4. Consider alternative ways to donate, such as IRA distributions and stocks.
Charitable donations don’t always have to be in the form of a check or online payment. There are multiple tax-efficient ways to give. You might consider donating appreciated stock directly to a charity, for example, as this would help you to avoid paying long-term capital gains tax. Additionally, if you’re more than 70 years and six months old, you could contribute directly from your traditional IRA (up to $100,000), which would count toward your required minimum distribution for that year. As these Qualified Charitable Distributions (QCDs) from your IRA make it so that your IRA’s income doesn’t affect your tax return, they act almost like a tax deduction.
5. Set charitable giving goals with your financial advisor.
Your financial advisor will be more than happy to hear about your charitable giving goals for 2021. By including them in your plan, your advisor can help you choose the best ways to give to make the most impact.
Are you hoping to give more in 2021?
Southwestern Investment Group’s advisors can help you plan for and reach your charitable giving goals while making the most tax-efficient choices along the way. Contact us today to schedule a consultation.
