Giving to charities and causes that are important to us is a profoundly personal and emotional act. It's rewarding to help individuals, communities, and causes we care about—especially during a crisis. That was certainly the case in 2020 when charitable donations in the U.S. hit a record $471 billion.
U.S. charitable donations in 2020
But when we make emotional decisions, we may not always think ahead. That's the biggest mistake I see my clients make when it comes to giving: Even with the best intentions, they can fall short of their charitable goals because they don't have enough information or discuss their plans with an advisor.
Just like you'd plan to save for a home, retirement, or any other long-term goal, you'll need a strategy. Building a formal plan and updating it each year can help you meet your charitable giving goals while maximizing available tax savings.
If you're wondering how much to give, what time of year is best to make your donations, or how much charitable giving can save you in taxes, talking to an advisor is a great place to start.
5 long-term strategies to make the most of your charitable giving
Donate appreciated assets instead of cash
It's easy to donate cash. But giving appreciated securities instead can mean more money going to charities and less to taxes. You won't have to pay capital gains taxes when you donate appreciated assets, and charities don't have to pay taxes when they sell them.
For example, if you wanted to give $10,000, you could give it as a cash gift. But if you have a stock fund that has appreciated to $10,000, consider donating the fund instead. You won't owe capital gains tax on the asset, you'll still receive a charitable deduction, and you'll meet your giving goals—possibly having paid less out of pocket. Learn more about how this works
Bunch your contributions to maximize deductions
In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act created a temporary tax deduction that allowed single or married filers to make qualified charitable cash gifts up to $300 without requiring itemized deductions. In 2021, it increased to $600 for married couples filing jointly. The good news is you still don't have to itemize these deductions. However, the tax break is no longer "above the line," which means it won't lower your adjusted gross income (AGI).
Although this tax break can be helpful for smaller gift-giving in the moment, planning ahead and itemizing your deductions may be a better choice. When I'm helping my clients build their giving strategy, I recommend they "bunch” their contributions into 1 year if it yields a higher tax benefit. Donor-advised funds are a great way to bunch contributions and spread out distributions over time.
"When I'm helping my clients build their giving strategy, I recommend they bunch their contributions into 1 year if it yields a higher tax benefit."
Carry over your annual deduction limits
for up to 5 years
Normally, you can deduct up to 60% of your AGI for the year for your cash donations. (Contributions of appreciated securities are limited to 30% of AGI.)
In 2020 and 2021, thanks to the CARES Act, individual taxpayers could deduct up to 100% of their AGI for their cash contributions. This enhanced deduction limitation is set to expire after 2021.
But if you want to give more, don't hold back! You can carry forward charitable giving above annual deduction limits for up to 5 years.
Donated $300,000 cash (Limit of $100,000 for 2021)
Deductions over time
Consider qualified charitable deductions (QCDs) if you're 72
When you reach age 72 (or 70½ if you turned 70½ before 2020), you're at the required minimum distribution (RMD) age—meaning you'll have to start making a minimum taxable withdrawal annually from your retirement accounts. RMDs were waived during 2020 but are back in effect for 2021.
If you're not itemizing your deductions and you're at RMD age, you may want to consider donating your RMD to a qualified charity through a QCD. It'll satisfy your RMD, and up to $100,000 annually won't count as taxable income. A financial advisor can help you figure out if this approach works for you.
Spread giving throughout the year
While most charities receive the bulk of their donations during the end-of-the-year "Season of Giving,” many organizations need funds year-round. Consistent giving throughout the year or setting up donations on a recurring basis can be helpful. Spreading out your donation over the course of the year rather than giving in bulk can lighten the load—and maybe allow you to budget for a bigger gift overall. With Vanguard Personal Advisor Services®, you can automate your gifting by setting up an automatic withdrawal plan for your QCDs to run monthly, quarterly, or whenever works best for you.
Name a charity as a beneficiary or leave a bequest in your will or trust
Thinking about what may happen after you're gone isn't anyone's favorite topic. However, I often encourage my clients to consider building charitable bequests into their plans if they're worried about giving too much too early.
Look at it as a legacy of giving. Naming a charity as a beneficiary or leaving a bequest in your will or trust allows you to give to causes that are meaningful to you without possibly overextending yourself if you need to spend more on long-term care or other expenses. Additionally, charitable bequests are eligible for the estate tax deduction and can reduce estate taxes.
Wondering what organizations to give to? Vanguard Charitable has tools to help you narrow your search: https://go.vanguardcharitable.org/resources.
Taylor Turner is a senior financial advisor with Vanguard Personal Advisor Services. He's been providing wealth management and financial planning services to high-net-worth clients since he joined Vanguard in 2012. Taylor is a Certified Financial Planner™ (CFP®) professional with a bachelor's degree in finance from Arizona State University.
Ready to think long-term about your charitable giving strategy?
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