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Year-End Tax Planning

Hand calculator with Scrabble letters in the keys spelling TAX.

By Chris Askin CSPG, CFRE
President & CEO

Every year, millions of people in the USA benefit from tax planning that includes their charitable gifting. Our country is unique in that a substantial part of the essential services we need are delivered through charitable organizations, and in recognition of this face, the IRS provides financial benefits to the donors who make these gifts. The strategies to take advantage of all these benefits go way beyond simply taking a tax deduction.

This year is also unique in that the law permits tax filers to apply an increased limit (up to 100% of their Adjusted Gross Income (AGI)) for qualified contributions made in 2021. The 100% limit is for eligible cash contributions (the usual limit is 60%). If you’re contributing to a donor-advised fund, you can deduct up to 60% of AGI for cash gifts to your fund, and/or 30% of appreciated assets such as land or stock. You can combine these as well, gifting appreciated assets first up to the 30% limit, then cash on top of that to reach the 60% mark.

For anyone who is already hitting the minimum needed to itemize your deductions, the deductibility of these gifts can be fully realized. Many donors to funds at the Community Foundation group their deductions, paying property taxes early and making their charitable gifts every other year, to maximize their deduction while then taking the standard minimum deduction in the off years. This has recently become popular due to the high standard minimum deduction.

In years when the stock market is hitting historic highs, like this year, many people contribute their most highly appreciated stock to their funds. As these gifts are received, the Community Foundation then sells the stock (paying no taxes), and invests the gift in the its long-term investment pool, which is highly diversified and professionally managed.

Many donors take advantage of the Qualified Charitable Distribution, which is a rule that kicks in as donors reach age 70½, which allows them to gift up to $100,000 from their IRA directly to charity without taking the distribution into taxable income. Although these gifts cannot go into a donor-advised fund, many donors use this mechanism to support the Foundation’s Community Endowment, one of the many organizational endowments, or designated funds like the Be Instrumental Arts Endowment that supports arts organizations in the region. For people who are not dependent on their retirement fund, this is a wonderful mechanism to support charity and avoid paying taxes on the income from a required minimum distribution.

There are more ways than you can imagine to incorporate charitable gifting into your financial plans, and some can be done in hours. If you'd like more information, call our team at (775) 333-5499 or email here.

The Community Foundation of Northern Nevada is strengthening our community through philanthropy and leadership by connecting people who care with causes that matter.

November 20, 2021