Transaction tax

Need tax relief? There are many ways to donate and save – Press Enterprise


The end of 2021 is fast approaching, so in addition to planning the holidays, it’s also time to think about our 2021 taxes.

When President Joe Biden’s infrastructure bill becomes law, tax changes will be made to both individuals and businesses. If you’re a high net worth person, consider meeting with your estate planning lawyer or accountant this year to discuss advanced giving strategies that are more complicated than those covered in this article.

The CARES law (Coronavirus Aid, Relief, and Economic Security) was promulgated on March 27, 2020. This relief program offered significant incentives to families who are inclined to support causes close to their hearts while saving money. important and significant tax. .

The Consolidated Appropriations Act (CAA), which passed on December 27, 2020, extended and broadened many provisions of the CARES Act for 2021, which continues to make this time a good time to make charitable contributions.

How can you make a difference in someone’s life?

Give money to family, friends

You can give $ 15,000 to as many people as you want. The 2021 gift tax exclusion is again $ 15,000 per person for a single filer.

If you are filing a tax return together with your spouse, as a couple you are allowed to donate a total of $ 30,000 to an individual. But if you give someone more than $ 15,000 (as an individual) or $ 30,000 (as a couple), the amount exceeding the IRS threshold is reported to the IRS and will reduce your exclusion amount. lifetime tax, which in 2021 is $ 11,700,000.

Cash donations

Taxpayers who do not itemize their deductions in 2021 will be able to claim a gross income deduction of up to $ 300 in cash donations to public charities. New in 2021 is an additional “above the line” deduction for married people filing jointly. Joint filers (who do not itemize) will be allowed a deduction greater than $ 600 in cash contributions to charity this year.

Individual taxpayers who itemize their deductions can now deduct certain charitable contributions up to 100% of the taxpayer’s adjusted gross income. Prior to the CARES Act, taxpayers were limited to deducting certain charitable contributions up to 60% of the taxpayer’s AGI.

The conditions for deductibility up to 100% of the AGI:

– Donations must be in cash.

–Gifts must be made to a public charity (not to a fund advised by donors or to most private foundations).

–The donations must be made during 2021.

If a donor gives more than 100% of their AGI, the donor can defer excess deductions for up to five subsequent tax years (although the enhanced deductibility expires after 2021).

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Donating highly valued, long-term taxable securities – stocks, mutual funds, and exchange-traded funds that have achieved significant appreciation over time – is one of the most tax-efficient ways to donate. . You get a tax deduction for the full value of the donation without having to pay the capital gains you would have paid if you had sold the securities.

To be eligible, assets must be held for more than one year and the benefits are numerous:

–Capital gains taxes are avoided on the future sale of securities.

–A tax deduction is received for the full fair market value of the securities, up to 30% of the AGI.

– You can significantly increase the amount of funds available for charitable donations because you do not pay capital gains tax on the donation. You are offering the full value of the security, not the after-tax equity.

–For valued securities donations made to a private foundation, the donation is limited to 20% of your AGI.

Most banks and brokerage firms can help you with this transaction, but will require you to sign a letter of instructions to transfer the shares to a charity. Don’t wait until the last week of December to start this task, or it might not happen in 2021.

Eligible charitable deductions

At the end of 2015, lawmakers approved a permanent measure allowing people aged 70 and a half or older to make qualifying charitable distributions directly from their individual retirement accounts to their preferred qualifying charities. Account holders over 72 can donate some or all of their minimum required distribution directly to charity. This amount is not included in income for tax purposes.

Some facts:

-The QCD can only be performed from the date on which the owner of the IRA is 70 and a half years old.

–The distribution must be paid directly from the IRA to the qualified charity.

–QCDs are limited to $ 100,000 per person per year and must be distributed by December 31 of the calendar year.

-Charitable distribution can meet the minimum annual required distribution (RMD) of the IRA, but not exceed it.

–When tax returns are filed, the QCD reduces the owner’s AGI to the IRA.

–The QCDs are not subject to withholding tax.

However, under the CARES Act, a person can choose to deduct 100% of their AGI for charitable cash contributions. This effectively provides people over the age of 59 and a half with similar benefits to a QCD: They can receive a cash distribution from their IRA, donate the money to charity, and may be able to fully compensate the loss. Tax attributable to the distribution by taking a charitable deduction in an amount up to 100% of their AGI for the tax year.

If you are planning a large donation in 2021, this can be a smart strategy as long as you are between 59 ½ and 70 ½ years old and not dependent on existing retirement funds.

Charitable trusts

Donating assets to a charitable trust provides a tax deduction and removes the assets from the donor’s estate. Depending on the type of trust established, these assets could provide a future benefit to the donor or heirs.

Donor Advised Funds

A donor advised fund is a charitable savings account that allows you to fund the account and enter the charitable deduction without immediately selecting a particular charity. Donations to a CFO can be made at any time, but when made, they are irrevocable.

The funds grow tax-free for the sole purpose of funding public charities qualified by the IRS. Over time, the donor recommends that the grants go to their preferred charities. In addition, the assets of an ADF are not included in the donor’s estate on death.

You can deduct up to 60% of the AGI in cash and up to 30% of the AGI in appreciated assets contributed to a DAF.

Donor advised funds can be established with your local community foundation or through companies such as Fidelity, Charles Schwab or Vanguard.

If your finances allow you to share your wealth, consider a giving strategy that works for you. Research has found that spending money on others makes us happier than spending it on ourselves, and giving to others can make us healthier too.

Teri Parker CFP® is Vice President of CAPTRUST Financial Advisors. She has been practicing in financial planning and investment management since 2000. Contact her by email at [email protected]


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