There are several ways for you to Give Smarter as 2020 ends and the 2021 tax season approaches.
Just as there are many ways for your donations to make an impact and give back to the College of Human Sciences, there are also several ways for you to Give Smarter as 2020 ends and the 2021 tax season approaches.
Wondering what those tips might look like?
Charitable giving expert, Professor and CH Foundation Chair in Personal Financial Planning Russell James III, Ph.D., J.D., CFP®, offers ten ways to get the most out of your donation in 2020.
- You can deduct $300 of charitable gifts without itemizing (2020 only). The $300 limit is one per tax filing unit, meaning married couples filing jointly will not receive $600. This cash gift can be paid to an operating non-profit (donor-advised funds do not qualify).
- You can deduct 100% of your adjusted gross income using charitable cash gifts (2020 only). These gifts must go to an operating non-profit (donor-advised funds do not qualify).
- Make a charitable swap by giving appreciated investments without changing your portfolio. With this option, donating appreciated assets creates TWO tax benefits. The tax deduction is the same size as a cash gift while allowing you to avoid paying a capital gains tax. With 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. There is also no waiting period. Why? Because this is a gain property, not a loss property. So, the "wash sale" rule doesn't apply.
- Combine a Roth conversion with a donation. Roth conversions move money from a standard IRA into a Roth IRA. The benefit? All distributions from the Roth IRA are tax-free, including distributions of future growth. However, the money moved into the Roth IRA will count as immediate income. Even so, up to 100% of income can be offset by charitable deductions (2020 only). This includes income created by a Roth IRA conversion. If you already have a multi-year charitable plan or pledge, donating it all to 2020 and combining it with a Roth IRA conversion might be a good option to consider.
- Withdraw IRA gifts at age 55 to 70½. IRA withdrawals during this age create no penalties, but they are taxable. However, in 2020, cash gifts can be deducted up to 100% of income. If you are already itemizing deductions, this can help offset the tax impact from an IRA withdrawal.
- Make IRA gifts at age 70½ and older. In 2020, IRA accounts have now required minimum distribution, but those aged 70½ or older can still make gifts directly from an IRA to a non-profit up to $100,000. This gift donates pre-tax dollars as the earned income is never taxed because it goes directly to the non-profit.
- Bunch gifts with a donor-advised fund. The 2018 tax law created much higher standard deductions. Fewer people can use charitable deductions because they aren't itemizing. One way around that is to "bunch" charitable gifts. For example, If a donor puts 5 years' worth of donations into a donor-advised fund, the donor takes a tax deduction for the entire amount in that year. Because the deduction is so large, the donor itemizes that year. In later years, the donor makes gifts to charities from the fund. This creates no tax deduction except in those years the donor takes the standard deduction instead of itemizing.
- Move your 401(k) and/or 403(b) into an IRA rollover now to prepare for future IRA gifts. RMDs will return in 2021 for those aged 72+. A qualified charitable distribution from your IRA or IRA rollover reduces RMD. It's a great way to give! To do this with a 401(k) or 403(b), you must first convert the account into an IRA rollover. But conversion requires first taking an RMD from the 401(k) or 403(b). You must pay taxes on that distribution.
- Consider an IRA beneficiary versus a gift in a will. Many people like to include a charitable gift in their will 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 in 2020, heirs (except spouses) must take out all funds (and pay taxes) within 10 years of inheriting, but any part left to a non-profit avoids these taxes. So, if you're leaving anything to a non-profit, use these accounts first.
- Take an immediate deduction for donating inheritance rights to homes or farmland. Many people like to include a charitable gift in their will, but you can donate the inheritance rights to farmland or home using a special deed instead. Doing this creates an immediate income tax deduction. Right now, these deductions are large because interest rates are low. For example, if a 55-year-old donor deeds the inheritance rights to $100,000 of farmland before the end of 2020, the donor gets an immediate income tax deduction of $90,371. The donor still keeps the right to use the property for the rest of his life, but it's deductible because, unlike a will, the donor can't change his mind once the gift is made.
As you consider the various routes to Giving Smarter this year, we hope you will also consider giving to the College of Human Sciences so that we may continue to make an impact on our students, colleagues, and the communities they serve. We thank you for your support of our college and our mission to improve and enhance the human condition.
You can visit our donor page here: https://www.depts.ttu.edu/hs/giving.php