2020 is coming to a close, and we approach a holiday season different from any we’ve known. Many of us find ourselves rethinking old traditions and being creative about how to spend meaningful time together.
Considerations for how to support your favorite charities also have changed. For those deciding on year-end gifts, here are five tax-smart ways to give at the end of 2020.
1. Deduct $300 without itemizing
This year only! You can deduct $300 of charitable gifts without itemizing. The $300 limit is one per tax filing unit. (Married couples filing jointly don’t get $600.) This must be a cash gift paid to an operating nonprofit. (So not to a donor advised fund.)
2. Deduct up to 100 percent of your income
This year only! You may deduct gifts of cash to offset as much as 100 percent of your income. Ordinarily, this deduction is limited to 60 percent of AGI. Again, these gifts must go to an operating nonprofit.
3. Make IRA gifts at age 70½+
IRA accounts have no required minimum distribution (RMD) in 2020. But those age 70½ or older can still make gifts directly from an IRA to a nonprofit up to $100,000. This gift donates pre-tax dollars. The earned income is never taxed because it goes directly to the nonprofit.
Our online tool makes it quick and easy to set up a charitable gift to F&M from your IRA.
4. Give appreciated investments
You can double your tax benefits by contributing stocks or other securities that are now worth more than you paid for them. You will receive an income tax charitable deduction for the share price and you avoid the capital gains tax that you would have owed if you sold them.
If you don’t want to change your portfolio, consider a charitable swap. You donate old shares of stock and immediately purchase new shares in the same company. Your portfolio doesn’t change. But the capital gain is removed.
5. Name F&M beneficiary of your retirement account
Many people like to include a charitable gift in their estate plans to support a cause that has been important in their lives. One tax-smart strategy is to leave part of an IRA, 401(k), or 403(b) account to a nonprofit. (It’s easy to change account beneficiaries by contacting the financial institution.)
Why is this smart? Because heirs pay income taxes on this money. Starting this year, heirs (except spouses) must take out all funds (and pay taxes) within 10 years of inheriting. But, any part left to a nonprofit avoids these taxes.
As always, your own advisers are in the best position to help you determine what would be most appropriate for you. We are available to work with you and your advisers as you consider gift options. Remember that some gifts can take longer to accomplish, so please be aware of timing if you are interested in meeting a year-end deadline. For more information, check our End-of-Year Giving page.