2020 Year-End Giving Guide: Help Reduce Your Income Taxes
At this time of year, you may not be thinking about how to reduce your income taxes. But it is indeed an excellent time to do so.
Depending on your tax bracket and whether or not you itemize, you may be able to lower your tax bill – possibly significantly – by making a charitable contribution. Several alternatives may significantly lighten your income tax burden while supporting a favorite charity.
The deadlines for year-end gifts and charitable contributions are approaching quickly. You may be able to reduce your tax bill by making a charitable contribution.
It generally makes sense to try to make multiple or more sizable charitable contributions in the years you have the highest income or highly appreciated securities. You may even consider making advance contributions if your income is expected to drop in the next year or two. Because everyone’s tax situation is unique, you should discuss your gift plans with your financial advisor and tax professional before making any contributions.
Consider this example:
- Tax bracket 25%
- Itemize Yes
- Gift $10,000
- Tax savings $2,500
Explore the many ways you can reduce your tax burden by making charitable contributions
One way to give that’s close to home is by contributing to Raymond James Charitable. This public charity was established in 2000 with the mission of providing simple and effective giving solutions. Because it is a 501(c)(3) public charity, you receive an immediate tax deduction up to the maximum allowed for your contribution. Second, if you contribute securities held for more than one year, you avoid paying long-term capital gains tax on the appreciated portion of their value. Gifts can also reduce estate taxes since your estate’s value has decreased equal to the amount donated.
Also, through the fund, you can request grants to specific qualified charities at any time. This lets you decide when and how much you want to donate to a particular charity.
Three Income Taxs Advantages of Giving:
- Receive immediate tax deductions
- Avoid long-term capital gains taxes
- Reduce estate taxes
Finally, your contributions have the potential to grow. Donations are invested tax-free in one of seven investment objectives or professionally managed accounts and may appreciate so that you can give more than the original value.
Consider Other Ways to Give
Charitable Remainder Trust
A charitable remainder trust (CRT) is an irrevocable trust that allows you to receive income and support your favorite charity by contributing cash, real estate, or appreciated stock while saving on income, estate, and capital gains taxes. There are startup costs, and an attorney is required to draft the trust.
Charitable Lead Trust
A charitable lead trust (CLT) is an irrevocable trust that enables you to regularly give money or property to a charity. Distributions can be made monthly or quarterly, for example, but no less than annually. The charitable gifts reduce the value of your taxable estate, thereby reducing the federal estate tax liability. In some cases, the estate tax may be eliminated. After a specified period or upon death, the remaining trust property passes back to you or your designated beneficiaries.
Give a Gift of Cash
If you itemize, you can make the most straightforward charitable contribution and lower your 2020 income taxes with a cash gift postmarked by December 31, 2020. As a result of the CARES Act, donors may give cash gifts up to 100% of their adjusted gross income. If you do not itemize, there is also the opportunity to deduct up to $300 above-the-line. However, gifts of cash made into donor-advised funds are excluded from these new CARES Act tax benefits, meaning you can still only deduct up to 60% of your adjusted gross income when giving cash to a donor-advised fund.
Give a Gift of Securities
While gifts of cash are simple to make and fully deductible, gifts of securities are frequently the most advantageous donation from a tax perspective. Contributing long-term, appreciated securities to your donor-advised fund allows you to avoid paying capital gains tax. Besides, you still receive an income tax deduction equal to the full fair market value of the security when it is contributed. Gifts of long-term, appreciated securities are fully deductible up to a maximum of 30% of your adjusted gross income.
Consider this example:
- Purchase price of stock $5,000
- Current value of stock $25,000
- Stock contribution amount $25,000
- Charitable deduction $25,000
- Capital gain avoided $20,000
Please consider creating a giving strategy and making your contributions early this year. The pandemic and the resulting economic disruptions have had significant effects on many local non-profit organizations’ services and operations.
They need us to keep them close despite social distancing during this season of giving. Gratz Park Private Wealth can help you create a plan to meet your philanthropic goals.
As always, please reach out to our team with any questions you may have. And, thank you for your trust in us.