At the end of every year we like to share a few charitable giving strategies for donors to consider. This year, I’d like to start by recognizing our region’s impressive generosity throughout 2020. Thank you for responding to the urgent health and economic emergencies we are facing. You’ve continued to demonstrate the strong philanthropic spirit that makes southwest Washington unique.
Through it all, the Community Foundation has continued partnering with generous residents to implement personal and impactful giving strategies. Our job is to ensure that your donations make the greatest impact on the causes you care about, while also maximizing your tax advantages. With those goals in mind, this year offers more opportunity than I can remember in recent history. You can see why in our top giving strategies of 2020.
1. Maximizing charitable incentives in CARES Act
In April, I wrote extensively about how the CARES Act provides significant incentives for charitable giving. As a quick recap, I’ve listed the most relevant incentives below. Some of these tax benefits expire on December 31, so make sure you plan your giving accordingly before they disappear.
- Higher Deduction Limit for Cash Gifts: You can receive a charitable deduction equal to 100 percent of your adjusted gross income by making gifts of cash to public charities, which could effectively offset your income tax liability for 2020.
- New Charitable Incentive for Non-Itemizers: Taxpayers who take the standard deduction can also receive a write-off from giving thanks to a new “above-the-line” deduction of up to $300 for cash donations to public charities like the Community Foundation.
2. Donating appreciated stock or mutual funds
Regardless of the state of the world, domestic financial markets have been performing well. If you have stocks or other publicly-traded securities that are worth more than what you paid for them, consider using these assets as charitable gifts this year. Gifts of appreciated stock and mutual funds have the double tax benefit of avoiding capital gains tax on the appreciated value, while receiving a deduction for the fair-market-value of the appreciated gift. Please consult your tax advisor because there are some deduction limits to stock donations depending on your income and situation.
The Community Foundation can accept marketable securities of any kind. However, we recommend initiating year-end mutual fund and stock gifts by December 23 in order for us to receive your gift and for you to realize tax benefits this year.
3. Giving from an IRA to reduce future RMD
Charitable IRA Rollovers is a giving strategy that allows you to avoid paying income taxes on your Required Minimum Distribution (RMD), while supporting your favorite causes in the community. Although provisions within the CARES Act waived RMDs in 2020 for most people, making a Qualified Charitable Distribution (QCD) still offers certain advantages. For those who take the standard deduction, QCDs offer a way to make a charitable gift and enjoy tax benefits similar to an itemized income tax charitable deduction. Others with large retirement plan balances may find it beneficial to use a QCD to reduce future taxable income when RMD rules eventually return.
While rollovers to Donor Advised Funds are not allowed, donors who are 70 ½ or older can direct qualified charitable distributions (QCDs) of up to $100,000 per year toward other funds at the Community Foundation, such as the SW Washington COVID Response Fund. You also have the option of creating a Designated Fund, Scholarship Fund or Field of Interest Fund with your distribution. To take advantage of this opportunity funds must leave your IRA before the RMD deadline. In addition, we recommend initiating your contribution by December 27 to ensure the gift is received this year.
4. Bunching gifts to exceed standard deduction
The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction ($12,000 for individuals, $24,000 for couples), making it difficult for some to receive a significant annual tax benefit from giving. One solution: bunch or “pre-fund” your giving. This giving strategy combines multiple years worth of donations into one annual gift to a Donor Advised Fund at the Community Foundation. You’ll maximize your deduction now, while spreading out grants to your favorite charities over time and benefiting from the standard deduction in later years. The chart below shows how a single tax payer who contributes $7,000 per year might bunch their giving for greater benefit.
You can establish a Donor Advised Fund in one meeting. However, depending on the assets your contributing, the timeline for giving may vary. Refer to our end-of-year giving schedule below for specific deadlines on different assets.
Plan and time your giving strategies accordingly
Planning and timing your giving is critical. By working with the Community Foundation, you gain access to our extensive knowledge on charitable giving strategies and local nonprofits. Using our tools and expertise, we can help you define and achieve your charitable goals.
Speaking of goals, let’s talk timing. If you are aiming to make a contribution before the end of the year, these dates will assure that we can provide you with exceptional service and still guarantee a 2020 tax deduction for your gift.
Our online donation form is always a great option for those giving cash gifts with a debit or credit card. For assistance with other contributions, including gifts of stock, please reach out to me or our Chief Financial Officer, Pam Cabanatuan. We are available every weekday from 9 a.m. to 5 p.m., with the exception of Friday, December 25. We’re always happy to assist, because we understand the urgency and importance of giving—especially in 2020.
Please note: The Community Foundation for Southwest Washington is not a licensed tax advisor. Donors should work with their financial, tax or legal professional to determine the best charitable giving strategy for their situation.