Thanksgiving Charitable Giving
Many in the U.S. want to help those in need more than ever. People are stepping up to help. Fortunately, the tax laws passed in 2020 will enable almost everybody to see the benefits of charitable giving on their income tax returns.
CARES ACT and Small Gifts
The CARES ACT created many ways for people to give and give generously. Before, if you did not itemize your deductions, you could not deduct your charitable gifts. Now, even if you use the standard deduction, you can deduct up to $300 in 2020.
CARES ACT and Big Gifts
If you always itemize, the CARES ACT can help you too. In the year 2020 you can deduct cash gifts of up to 100% of your adjusted gross income. The old rules limited your gift to 60% of your adjusted gross income. In order to take advantage of this benefit, the gifts must go directly to charity(s). These gifts cannot be contributed to a donor advised fund.
Donor Advised Fund
A donor advised fund is a special type of charity. This type of fund is managed by a financial services company or a community foundation. The first step to create a donor advised fund is to decide which charities you want to benefit. These charities must all be qualified charities with IRS approval of their status as charities.
After you have decided which charity(s) you want to help, the financial services company or community foundation will open an account in your name. You can then transfer your charitable contribution into this account. The principal of the account will stay forever in the fund. The income generated by the account, will be distributed to charity.
The nice part about a donor advised fund is that you get the income tax deduction in the same year that you made the contribution. Also, in general, you can always change the charities.
There is one thing you need to check out ahead of time. That is the minimum amount which you have to contribute. This amount can be as low as $1,000 or as high as $100,000. Each donor advised fund has different amounts.
Double Tax Break
There are many ways to give to charity besides a gift of cash. You can also give a gift of appreciated stock. For example, let’s say you want to give $1,000 to charity, but you don’t want to spend the cash. You can substitute publicly held stock for the cash and save income taxes two ways.
To make this simple, let’s say you own 100 shares of some stock, which today is worth $1,000. Also, let’s say you paid $100 for the stock ten years ago. Here is what happens. You transfer ownership of this stock to your favorite charity.
Because the value of the stock today is worth $1,000, you get a $1,000 deduction on your income tax return in the year you made the contribution. This is the first way you save on income taxes. But that is not all. Since you paid $100 for the stock, if you would have sold the stock you would have had to pay capital gains tax on $900.
| $1,000 | Current Value of the Stock | |
| less | ($100) | Your Original Cost |
| means | $900 | Capital Gains |
But, because you gave the stock to charity before you sold the stock, this capital gains tax goes away forever! This is the second way you save on income taxes.
This type of gift to charity is a win for you, and a win for the charity of your choice!
In Conclusion
While you are enjoying your Thanksgiving, remember that you have many choices in giving to charity. Whether you give through the new benefits of the CARES ACT, or Donor Advised funds you help yourself and charity.
If you want to take advantage of double tax-free gifting, you may be able to do that too. The decision is up to you.
You now know that charitable giving works for everybody. Whether you are young or old, or somewhere in between you have a favorite charity. All charities today need more contributions. The reason is the need is much greater during this very troubling time.
We can all help out, a little bit, or a lot. The decision of how much you can afford and the way you want to give is up to you. You have the power to make life easier for those people and animals who are less fortunate than you or your family.
What type of charitable gift are you going to make this year?