Two days left to use charitable contributions to lower taxable income
Dec. 30—With only two days left in 2020, those looking to lower their taxable income during tax preparation next year by donating to charities still have some options available.
Adequate tax planning requires taking a look at both 2020 and 2021, according to
"Previously, the CARES Act allowed single filers to take a
Those going the itemized route would need to exceed the standard deduction, which is
"In a typical married joint filing in
Those "other" deductions could include mortgage interest, medical expenses and charity, Powell said.
"You kind of have to look at that and say 'Alright, how much would I have to give to get any benefit at all because if I didn't have a mortgage and no big medical (expenses) then ... I need
For those who are able to do it, front-loading a deduction by bunching and bundling allows people to donate multiple years of funding to a charity in one year while gaining tax incentives across several years.
"We've told (people) to use donor-advised funds, things with some of the community foundations, where you can put money in, get a charitable deduction and then spend the money out of that fund over the next two or three years to the charities that you want to give them to," Powell said.
In years past, a taxpayer could give 60 percent of his or her adjusted gross income (AGI) as a cash donation and take a deduction for up to 60 percent of that AGI, Powell said. However, a recent law not only increased that amount to 100 percent, an even newer one this week allows for it to carry over for 2021, he said.
That's a lofty giving amount and something likely to be reserved for someone wealthy and retired and "very charitably inclined," Powell said.
"We're in rare air when people are doing that," he said. "There's very few people who can do that."
Those who are older than 70-and-a-half years old and have an individual retirement account (IRA) can donate as much as
"You don't get a deduction, but you end up not picking up that required income in your return, which is in effect, an ordinary income deduction for federal and state tax purposes," he said. "It's the best way to do it because it's an above-the-line deduction. This way, you wouldn't even report the income on your return."
5 tax tips for charitable giving — If over 70 1/2 years of age, consider gifting from your IRA (Qualified Charitable Donation) first since that tends to be the most tax efficient method of gifting. It is suggested to work with one's IRA custodian, as the charity needs to receive this directly from the IRA. — Another tremendous charitable technique is to contribute appreciated stock to charity. You receive the fair market value as a deduction, but you aren't taxed on the appreciation. — If you don't itemize, you can contribute
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