If the far-reaching effects of the COVID-19 pandemic want you to improve your charitable contributions, remember these tax considerations for 2021:
Cash gifts. A special rule for this year allows taxpayers who do not specify deductions to claim up to $ 300 ($ 600 for shared files) for gifts to qualified charities.
If you specify this, cash contributions to qualified charities in 2021 could be used to reimburse up to 100% of your adjusted gross income (60% AGI for cash gifts to a donor advising fund or 30% for cash gifts to a private foundation).
This means that if you are able to give generous gifts, you can potentially recoup all taxable income. In addition, cash gifts can be used to offset Roth IRA conversion income or capital gains from the sale of real estate or a large position in a single investment.
If you can’t pinpoint the item, but would like to, evaluate the potential impact of merging several years of charitable contributions into one year. This can increase your detailed deductions above the standard deduction threshold, so you can potentially get a tax benefit for those gifts.
Review your income and deductions for the current year and the next few years with your tax advisor to determine what the best time is for those collected contributions.
Qualified free distribution. For taxpayers over the age of 70 or older, the QCD allows you to donate up to $ 100,000 per year directly from your IRA to qualified charities.
QCDs are non-taxable distributions and count on meeting your minimum distribution. Keep in mind that although RMDs have been waived for 2020, they must be taken for 2021.
No deduction is allowed for QCD because distribution is not taxable. This strategy is useful if you are not going to specify deductions this year. It could also help you control your AGI, which is used to set many tax restrictions.
Keep in mind that the amount of QCD you can exempt from your income is reduced by any deductible IRA contributions you make in the year you turn 70 1/2 or older.
Stock gifts. Donating shares directly to charity, instead of selling and contributing to income, provides instant tax benefit if you specify deductions. In addition, it allows you to avoid taxing capital gains on the appreciation of shares if it has risen in value while you owned it. Deductions for share gifts are limited to 30% of the AGI when contributions are made to public charities.
Before using any of these strategies, consult your tax and financial advisors to help achieve the best results.
Wells Fargo Advisors does not provide tax or legal advice. Please consult your tax and / or legal counsel before taking any action that may have tax and / or legal consequences.
This article was written by Wells Fargo Advisors and courtesy of Alonso Martinez, Financial Advisor at Valdosta, at (229) 259-7844.
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