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The Season of Charitable Giving

December 8, 2020

By. Dan Steele, CPA
The holiday season is quickly approaching, along with the season of giving. No, I am not talking about giving your mom another cookbook or your kids that gaming console they have been endlessly pestering for, I am talking about charitable giving. There are new tax rules in place for 2020 to incentivize charitable donations and there are several strategies individuals can utilize to maximize the benefit of donations towards their itemized deductions.
New for 2020 comes an above-the-line deduction for charitable cash contributions for those that do not normally itemize deductions due to the higher standard deduction being more beneficial. For 2020, if you take the standard deduction, you can now also take a deduction of up to $300 for charitable contributions along with the standard deduction. This is a per return deduction, meaning joint filers can only deduct $300, not $600 like some may assume.
Another new tax rule for 2020 is the suspension of the 60% of Adjusted Gross Income (AGI) limitation on cash donations. In recent years, the amount of charitable cash donations taxpayers can deduct on Schedule A as an itemized deduction has been limited to 60% of the taxpayer’s AGI. This limitation is suspended for 2020, so if you have been contemplating a large cash donation, now is the time to do it.
There are also a few strategies to consider this year if you are looking to increase your itemized deductions.
Consider grouping donations that you typically make each year, or over multiple years, together for one donated sum in 2020. This is a great way to bump your itemized deductions above the standard deduction and can also give charitable organizations a much-needed boost.
Contributing appreciated investments such as stocks or shares in mutual funds is a highly recommended tax planning tip. Generally, if you have owned the investments for more than a year, you can write off the full market value of the donation, if you itemize. In addition to increasing your itemized deductions, you also avoid paying capital gains tax on the investments as you would if you sold them. Keep in mind, however, you must donate the investments themselves. Do not sell them first and then donate the cash as this will result in recognizing the capital gains and having to pay the related tax.
If you have spent more time at home this year due to the pandemic, you may be realizing your house is cluttered or that your closet is bursting at the seams. Now is a great time to donate clothes and household items to thrift stores or to shelters or other charitable organizations who are in need. The value of your donation qualifies as a charitable gift towards your itemized deductions, but make sure you get a receipt from the organization to provide to your tax preparer.
The Coronavirus pandemic has hit many charities hard… now is a great time to lend a helping hand by donating cash, stocks and other non-monetary items, while generating a tax savings for you personally.

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