We won’t break out in song, but this is something to celebrate in 2020. Charitable gifting - in many cases - is providing the planning opportunity of a lifetime!
Are you aware that you may deduct up to 100% of your Adjusted Gross Income by way of making charitable gifts in cash this year? If you are a corporation, you may deduct up to 25%! This is up from 10% in previous, non COVID-19 years.
You may be asking: so how is this a planning opportunity? Truth be told, there are too many opportunities to mention, but we will highlight some of the brightest.
#1…Get your Itemized Deductions back! The last published article regarding the drop in deductible charitable contributions from pre-tax reform to post tax-reform was presented in July 2019. It had not even been a full tax season and taxpayers had deducted 54 billion dollars less in charitable contributions than the past tax season - a lot of money by anyone’s standards.
If this was you, consider “Bunching.” This is a great year to stock-pile one to three years of gifting and get deductions you wouldn’t get otherwise. A little-known fact is that you don’t have to send all of it to the charity this year. You can gift as you normally would.
Sound good? There’s more. Consider converting your fully taxable IRA to a Roth IRA. If done right, you can make part of your retirement tax-free and the price is $0!
#2…Don’t pay tax when you don’t need to pay tax! Okay. This statement is a focus of this entire commentary. Yet, this particular item is something too often overlooked. You probably have some investments that have made some money. You may even have some that have made a lot of money. Rather than giving cash, consider giving part of the investment. This circumvents paying tax on that gain either now or later. You can always use your cash to buy it right back.
#3…Just because you don’t have to take an RMD1 in 2020 doesn’t mean you shouldn’t take a QCD2. If your IRA is making money, you have a growing tax problem. You may even have a growing tax problem if your IRA isn’t making money. The odds are that taxes are going up. This means that there is a good chance your investments are better served outside an IRA.
Consider this: You can send $100,000 directly from your IRA to a 501(c)3 and never see this number on your tax return. It doesn’t increase the amount of Social Security income that is taxes. It doesn’t increase your Medicare premium. And, it doesn’t require you to itemize your deductions. Fully taxable IRA money is simply no longer taxable utilizing this strategy. But keep in mind that you should probably replace it with the cash you were going to send to the charity. Your retirement plan will thank you.
Deck your season with a holly, jolly gifting strategy in 2020! You may never see this opportunity again.
- Required Minimum Distribution
- Qualified Charitable Distribution
The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.