You might recall that the Tax Cuts and Jobs Act made it much harder for Americans to get tax breaks on their charitable giving by raising the standard deduction so that fewer people have the opportunity to itemize. Of course, you want to do some good for the community with your charity dollars! But receiving the tax break is nice too.
For National Philanthropy Day, we wanted to give you some ideas for making the most of your charitable gifting this year.
Choosing a charity
More significant dollars make a bigger impact. In other words, if you select just five charities and give them $1,000 each, you’ll make more of an effect than if you sent $100 to 50 charities.
That may mean that you take more time to figure out where you truly want your charitable funds to go and to ensure that the organization is one that you are willing to support. Although many of our clients have a wide variety of philanthropic interests, we encourage you to choose your top two or three and plan to make a difference through them.
Many of the charity rating websites can provide you with a list of the top charities according to the issues that are most important to you.
For tax deduction purposes, your dollars need to go to an organization recognized as a charity. A 501c3 entity can show you their IRS letter granting them charitable tax exemption. You can also find them on the IRS’s lookup tool.
Research the charity to make sure it’s worthwhile
Verify your choices with online sites that provide ratings and information about them. Make sure that your money is going to an entity that values the same things you do.
You can ask the organizations some questions directly as well. What is their mission, and how have they made progress toward it and their goals? Do they have transparency about financials and IRS forms that are readily available on the website?
Watch for costs, primarily operating or administrative. Although not the number one consideration for choosing a charity, costs can help guide your decision. Some charities require a lot more internal support than others, and the organization must staff up to carry out the mission.
Although the vast majority of charities that you’ll come across are healthy and dedicated to their vision, some scam artists operate in this space.
If you get an email from an organization you’ve never heard of before, be skeptical. Most of the time, a true charity only emails you when you provided your address to them. And if they’re asking you to send money to a foreign bank or institution – forget it!
Legitimate charities usually don’t send attachments with their emails. They may have pictures that link back to the site, but clicking on an attachment can unleash a virus or other cyber issue into your computer. Delete them. If you’re concerned, you can always look up the phone number on their website and double-check.
You’ll probably see a lot of information come through your social media feeds, too. Remember those scam artists and others, including Russian intelligence, plant bots, and fake profiles. Do your homework first if you see something through social media you want to investigate.
If someone claims to be a victim through email or social media, that’s also likely a scam. You can always search for the charity’s website, look it up on an online rating site, and determine if it’s legitimate.
Don’t forget QCDs
The TCJA also increased the age required to take minimum distributions (sometimes called RMDs or MDRs) from your Traditional or pre-tax retirement accounts. If you’re 72, you need to begin these withdrawals.
However, you can deposit up to $100,000 of the funds at the (legitimate) charity of your choice. This option is known as the Qualified Charitable Distribution or QCD. The distribution must go directly to the charity without making a pit stop at your bank account along the way to avoid disqualification.
As you know, typically, you have to pay taxes on your RMDs. That’s the whole point of having mandated withdrawal requirements. But if you do a QCD directly to the charity instead, you won’t pay taxes on the withdrawal.
Bundle potential deductions
The standard deduction for married couples for the 2020 tax year is $24,800 ($12,400 for singles and married filing separately.) Since the TCJA limited the deductions you can take on items such as mortgage interest and state and local taxes, many taxpayers no longer itemize. Which means they can’t take the itemized deduction for charitable gifts.
However, if you have some unusual deductions this year that could push you over the standard deduction, you might want to accelerate them into 2020 and do some charitable giving while you’re at it.
For example, the floor to deduct medical costs is 7.5% of your adjusted gross income. If you happen to reach it this year because you’ve had some medical issues, you might exceed the standard deduction.
Another avenue to consider is bundling your charitable donations into one tax year to help you exceed the deduction threshold, rather than giving smaller amounts annually. If you decide to use a donor-advised fund, you could bundle several years’ worth of giving into one tax year and then portion out the money to your charities over time.
This strategy provides an excellent opportunity to make some substantial gifts and receive your tax break.
Ordinarily, you would only be able to deduct up to 60% of your adjusted gross income for a cash donation to a qualified organization. However, those limits have been suspended for 2020. The ceiling is still in place for non-cash donations, such as stocks.
Thinking about how best to make your charitable gifts this year? We can help. Just give us a call at 619.255.9554 or email us to set up an appointment.
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