Retirement planning and charitable donations may not be the first pairing in mind when it comes to preparing for your golden years. However, asides from the feel-good factor, you can actually retain associated tax benefits.
There are many advantages associated with charitable giving; One reason being, you have a strong connection to the charitable organization you’re donating to. Another reason would be you’re making connections and making an impact to your community while giving.
So while donating to charities can be extremely gratifying and fulfilling, effective charitable giving requires a smart strategy. When and how you give makes all the difference. Here is a closer look at why you should donate to your charities of choice.
Your financial contribution to a charity could benefit someone greatly. A simple donation could easily elevate the quality of life for someone who is struggling immensely. Thinking of others in need helps you gain perspective on hardships you have potentially faced and appreciate the good things you have in your life. The act of giving to charity is a great way to express gratitude for your good fortune.
Realistically, you don’t need to give a large sum of money to make a difference in someone’s life. In developing countries, a couple bucks could go a long way and provide a month’s worth of food, or pay for schooling for someone in need. U.S. Dollar donations can go a long way in those countries.
If you set a scheduled donation each month for a particular charity, that can motivate you to be more attentive to your own finances in an effort to ensure you don’t default or fall behind in your monthly donations. Anything that gets you to pay closer attention to your bank account is a good thing—especially when it helps those in need.
When you donate to a charitable organization it can provide you with a contribution deduction against your income tax, if you itemize your deductions properly. It’s important to note that if you do itemize, your total deductions need to be greater than the standard deduction.
There are certain limits to how much you can deduct, but they’re typically very high. For most people, the limits on charitable contributions don’t apply. Under the new tax law, if the contribution is made to a public charity, the deduction is limited to 60% of your contribution base.
The rules on percentile limits are extremely complex, so if you are giving to organizations other than those listed here, first consult with your financial advisor to determine whether these other benefits apply.
Donors who wish to itemize deductions for non-cash assets, cash, or a combination of both may choose to give beyond annual deduction limits and carry over the excess amounts up to five years. Some donors find the total of their itemized deductions for 2021 will be slightly below the level of the standard deduction.
If that is the case, it would be beneficial to bunch 2021 and 2022 charitable contributions into one year (2021), itemize their deductions on 2021 taxes, and take the standard deduction on 2022 taxes. This strategy could produce a bigger two-year deduction than two separate years of itemized deductions, depending on your income level, tax filing status, and giving amounts for each year.
Donors who bunched two or more years of contributions into 2020 and subsequently will take the standard deduction for 2021 may also consider taking the special $300 or $600 deduction for cash donations made to operating charities in 2021.
If you contribute property owned for more than one year, the value of the deduction is normally equal to the property’s fair market value. You have an advantage when you contribute appreciated property because you get a deduction for the full fair-market value of the property. You are not taxed on any of the appreciation, so, in effect, you receive a deduction for an amount that you never reported as income.
Ultimately, the best charitable giving strategy is one that achieves your philanthropic and financial goals in the most effective way possible. As donors contemplate how to maximize their impact with their giving in 2021, you should know that great tax benefits exist for those who give.
At CKS Summit Group, all of our charitable specialists possess the knowledge and experience necessary to best handle your financial as well as donation needs.
To contact CKS Summit Group and schedule your personal strategy session, please give us a call at 586-286-5820 or click here.