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Why Make Year-End Charitable Donations?

This is a fantastic year and month to make donations—here’s why

While 2021 saw numerous new advancements—including extensive vaccination distribution and reopenings—the 2020 COVID-19 pandemic continued to wreck national upheaval owing to disease, uneven mitigation, increasing inflation, and other financial concerns. 

Nonprofit groups battled under the same conditions. Charities typically faced greater demand, while striving to fundraise in uncertain times. A gala may be scheduled, then canceled as cases climbed; arts groups endured cancelled performance dates; staff or volunteers faced worries about sickness. Inconsistent gifting compounded problems, according to numerous local and national sources. In the previous two years, several sectors suffered more, particularly small charities, arts-based organizations, and urban-based NGOs. 

Many nonprofits still need 2021 contributions. Three out of four organizations consider individual contributions as “essential or very important for their work,” according to research by the Urban Institute.1 If you’ve stayed financially stable, or charitable giving is essential to you, any year-end gifts might be vital to many struggling groups.

Learn about the advantages of year-end giving—along with fantastic strategies to meet your objectives.

Why 2021 Was a Particularly Good Year for Charitable Donations

In view of demands produced by the still-ongoing COVID-19 epidemic, increasing demand on charities, and a unique tax provision that may vanish after this year, 2021 is a favorable year to contribute.

The epidemic led to the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided taxpayers the ability to deduct contributions of up to $300 per adult or $600 per couple, filing jointly. The Act was initially supposed to expire in 2020, but December 2020’s Taxpayer Certainty and Disaster Tax Relief Act extended the deduction until the end of 2021.2

In essence, individual taxpayers are granted a $300 deduction ($600 if married filing jointly) for financial gifts made by December 31, 2021 to specified charities, without necessitating itemizing. Cash contributions aren’t limited to real cash, but also includes check, or credit or debit card payments, or unreimbursed out-of-pocket costs from volunteer activities with a qualified charity organization. However, monetary gifts don't cover dropping off home goods at Goodwill, nor the value of volunteer services, shares (stocks), or other property. 

This provision makes the deduction available to the 90% of taxpayers who otherwise couldn’t benefit from a charitable gift, according to the IRS. As importantly, the $300 gift decreases your adjusted gross income (AGI) and taxable income. 

Qualifying organizations must have charitable, educational, religious, literary, or scientific purpose—and be designated by the Internal Revenue Service (IRS) as tax-exempt.

Use the IRS’s Tax Exempt Organization search tool to check an organization qualifies before giving. 

Big-dollar gifts are encouraged, too, by temporarily boosting the customary ceiling on deductions for people who itemize. Before 2020, contributors may deduct gifts on up to 60% adjusted gross income (AGI). In 2021, it’s allowed to deduct monetary donations of up to 100% of AGI. If you desire to give up your whole year’s salary, it’s feasible to do so in 2021.

However, few will gain from this brief lift—mainly rich older folks with modest yearly incomes who aren’t reliant on their retirement assets. 

The previous many years’ erratic-yet-steady stock market rise may imply you may gift more in valued assets.

Many states additionally give tax deductions for charitable donations, or have their own tax-related regulations. Speak with a tax attorney or specialist about your case. 

Reasons to Make Year-End Charitable Donations

Good reasons to donate at year’s end include the following, ranging from money gains to personal gratification. 

Take Advantage of Employer Matching 

Some businesses match philanthropic gifts, however they may put cash restrictions and deadlines on charity matching, such as Dec. 31. You may be able to earn a match even if you’re not presently an employee—many firms match contributions provided by an employee’s spouse or a retired employee. 

Some organizations match at rates of two or three times the amount donated by an employee. Check with your HR department to find out your company’s guidelines and match rate.

Generate Tax Deductions

To count against your 2021 taxes, you must make contributions before Dec. 31, 2021.4 In a normal year, persons who opt to take the standard deduction cannot claim a deduction for their charitable donations. But a unique tax provision revealed by the IRS now lets taxpayers to deduct up to $600 in gifts to eligible organizations on their 2021 federal income tax return.

Give to Gift

Most organizations provide a means to gift in honor of someone else. This might be a terrific method to take care of last-minute Christmas presents, particularly for someone hard to buy for. However, it may be up to you to notify your honoree via card. Check with the site or charity to find out.

Some conservation groups give “symbolic adoptions” together with a certificate and plush toys, so there are tangible (and wrappable) presents, in addition to your monetary commitment. 

Offset IRA Taxes

To offset IRA taxes, one alternative is to transfer up to $100,000 from your IRA directly to a qualifying organization before Dec. 31. This is sometimes termed a qualified charitable distribution (QCD). Generally, a QCD is an otherwise taxable distribution from an IRA (other than a continuing SEP or SIMPLE IRA) held by a person who is age 70½ or over that is paid directly from the IRA to a qualifying charity.

Speak with a tax or personal financial specialist about the particulars of your situation, particularly where taxes and retirement savings are relevant. 

The Best Ways To Donate for Tax Purposes

The optimal technique to contribute depends on what you’re seeking to achieve—whether it’s a short contribution or a higher tax deduction for your itemized 2021 return.

If You Don’t Itemize

Give cash by Dec. 31 to obtain the $300 CARES Act deduction. Or you may gift appreciated stocks or other assets to an organization to possibly avoid paying capital gains on the appreciated amount. However, you can’t deduct the stock’s value from your taxes or claim the CARES deduction if you give stocks.

Before contributing, study your charity’s governance using a site like Charity Navigator. 

If You Do Itemize

If you expect to itemize, you may gift mutual funds, cash, or other assets before Dec. 31 to qualifying organizations. 

“As stock values have gone up, now may be a good time to donate if you have a legacy stock holding that has appreciated in value,” noted Roger Ma, a New York City-based founder and financial advisor at lifelaidout and author of “Work Your Money, Not Your Life.” 

“You can donate the security and get the stock’s full value as a tax deduction, without paying capital gains,” he explains.

Or, you may be interested in more complex forms of contributing that match tax advantages with the joy of giving to causes important to you.

For example, a donor-advised fund (DAF) might be a good choice if you’re charitably inclined, itemize deductions currently, and are in a high tax bracket, according to Ma. A DAF is like a charity investment account, and may be a tax-efficient method to handle appreciated assets and bigger donations. You might also contribute assets like stocks, bonds, and restricted shares from your company to the DAF.

According to the IRS, once the donor makes a DAF donation, the organization itself has legal authority over it. However, the donor, or their agent, retains advising rights in relation to the distribution of cash and the investing of assets in the account.

Beyond cash and securities, you may offer household things, too—if you list the used goods you give away, Goodwill’s guide to estimated values can assist. 

Donating old products keeps them out of the garbage stream and gives useful items for folks on a budget—which might be particularly helpful this year.

Depending on your gift, you may require a receipt from the recipient organization or need to fill out a particular tax form. Check with your tax preparer for further information.

The Bottom Line 

Giving is an excellent idea for a lot of reasons, particularly in 2021. In addition to properly dispersing the wealth, you may enhance your personal circumstances and feeling of well-being by benefitting from unique tax benefits and cleaning your space. It’s a generous approach to launch into the new year with the appropriate financial footing.

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