Welcome to the 2021 CFSEK Year-End Giving Guide! In this guide, we’re summarizing six charitable-giving strategies that Southeast Kansas residents can use this year to increase their charitable giving and decrease their federal tax bills. Like last year, some of these strategies offer limited-time opportunities for taxpayers, but some of them are old standbys and always worth considering. We hope you’ll take a look!
Note: The Community Foundation of Southeast Kansas does not provide legal, tax, or financial advice. You should consult your own attorney, accountant, or financial advisor to determine whether or how you can take advantage of any of these year-end giving strategies.
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Special 2021 year-end giving opportunities
In 2020, Congress enacted several special tax rules in response to the COVID-19 pandemic. Then, they extended some of those rules for 2021. The IRS website has more information on each of these limited-time tax benefits.
1. Special $300 – $600 tax deduction
Normally, taxpayers who claim the standard deduction on their federal income taxes can’t deduct their charitable donations. That means that about 90% of Americans see no federal tax benefit for their giving.
Luckily that’s all changed for cash donations to qualifying charities (like CFSEK) in 2020 and 2021. Individuals who claim the standard deduction on their 2021 taxes can also claim a special deduction for such donations. Using this deduction, single taxpayers can deduct up to $300, and taxpayers who are married and filing jointly can deduct up to $600.
Unfortunately, contributions to a donor-advised fund are not eligible for this special deduction.
2. Increased AGI limit for itemizers
What about the 10% of taxpayers who do itemize their deductions? For them, Congress has increased the limit on the charitable deduction.
In an ordinary year, the charitable deduction for cash contributions is limited to, at most, 60% of a taxpayer’s AGI. But for 2021, that limit has been increased to 100% of AGI. Taxpayers must opt into this higher limit, and contributions to a donor-advised fund are subject to the normal AGI limits.
3. Increased deduction limit for C corporations
Finally, C corporations can claim a deduction of up to 25% of their taxable income for cash contributions to qualifying charities during 2021. The ordinary limit is 10% of a corporation’s taxable income. As with the increased AGI limit for individuals who itemize, corporations must opt into this increased limit.
Ongoing year-end giving opportunities
In addition to the special, limited-time benefits described above, several time-tested year-end giving strategies remain available for 2021.
4. Donating appreciated assets
Highly appreciated assets held for more than one year present prime giving opportunities for taxpayers. By donating long-term-capital-gain assets like appreciated stock, an individual can avoid ever having to recognize the gain on those assets. In addition, the donation qualifies for a deduction equal to the fair-market value of the asset (up to 30% of AGI). Consequently, donating highly appreciated assets can result in greater tax savings than selling the assets and then donating the proceeds.
5. Qualified charitable distributions from an IRA
Individuals who are 72 or older and who have a tax-deferred IRA must withdraw a certain amount each year (the required minimum distribution or RMD). The RMD is included in the individual’s taxable income for the year.
However, if the RMD is distributed directly to a qualifying charity, then it will be excluded from the individual’s taxable income. This type of distribution is known as a qualified charitable distribution (or sometimes a charitable rollover). The exclusion is limited to $100,000.
Distributions to a donor-advised fund don’t qualify for this benefit, but distributions to other types of charitable funds would. The IRS website offers more information about RMDs and qualified charitable distributions.
6. Bunching and donor-advised funds
One final strategy is to bunch two or more years’ worth of donations into a single year. This is helpful when by doing so a taxpayer can increase his or her itemized deductions for that year over the standard deduction.
This strategy can be especially fulfilling when combined with a donor-advised fund (DAF). In that case, the taxpayer can claim the higher deduction in the year he or she gives to the DAF, but then decide which charity or charities should ultimately receive the funds over time.
The benefits of bunching donations to a DAF can be hard to visualize, so below is an example to help.
Peter and Gwen are a married couple who ordinarily give $1,000 to their church every month. They also pay $5,000 per year in mortgage interest. They have no other itemized deductions.
- Scenario A: Peter and Gwen follow their ordinary giving strategy during 2021. For their 2021 taxes, they compare their total itemized deductions ($12,000 + $5,000 = $17,000) to the standard deduction ($25,100). They decide to claim the standard deduction.
- Scenario B: Peter and Gwen follow their ordinary giving strategy during 2021, but they also establish a donor-advised fund at CFSEK in December. They contribute $12,000, enough to cover their 2022 church donations. For 2021, they compare their total itemized deductions ($24,000 + $5,000 = $29,000) to the standard deduction ($25,100). They realize they can save taxes by itemizing this year. Then, during 2022, Peter and Gwen recommend grants from their DAF to their church each month. Their itemized deductions for 2022 total just their $5,000 in mortgage interest, so they claim the standard deduction for their 2022 taxes.
Year-end giving deadlines and other reminders
The end of the year is fast approaching! Be sure to leave yourself enough time to consult your advisors regarding the strategies outlined above and implement their suggestions. To qualify as a 2021 donation:
- A gift by check must be postmarked or actually received by December 31.
- An online donation must be made by 11:59 p.m. CST on December 31.
- A gift of stock must be received by CFSEK by December 31; contact your broker to determine the deadline to request a transfer.
Finally, keep in mind the recordkeeping and other substantiation requirements needed to support a charitable deduction. You can learn much more about this topic in IRS Publication 526 (downloads PDF).
Thank you for reading our guide! If you have questions about year-end giving to CFSEK, please contact us!