As divided as Americans may be about a whole bunch of issues, it's heartening to see that we do still agree on the importance of giving back. According to recent reports, as America faced some of its toughest challenges ever in 2020, charitable giving rose 5.1% to a record $471.44 billion.
That number is really remarkable when you think about how hard the pandemic hit so many individuals and businesses in their wallets. Add in the stress and uncertainty we were all dealing with and it's clear Americans really went out of their way to help important causes and communities in need.
That big boost in giving could also be a positive long-term trend, as many experts had worried that recent changes to tax laws might disincentivize charitable giving. As we discuss on today's show, effective giving plans for the year ahead should account for those changes while weighing some important options for doing the most good.
But before we get into the nitty gritty, how about a pop quiz!
According to a recent survey published in Nonprofit and Voluntary Sector Quarterly, what are the top 5 reasons that people give to charity? Take a second to jot down your guesses, and I'll reveal the answers at the end of this article.
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1. Charitable giving and the standard deduction
The Tax Cuts and Jobs Act of 2017 aimed to simplify tax filings by raising the standard deduction. For your upcoming 2021 filing, the standard deduction is $12,550 for single filers and $25,100 for joint filers.
The higher standard deduction means that fewer folks are itemizing their taxes. On the one hand, if you aren’t giving enough to be over the standard deduction, that means you aren't getting the same itemized deduction for charitable giving that you used to. On the other hand, if you're taking the standard deduction, then you're essentially getting the same tax benefit whether you give or not.
Considering the record donations in 2020, it looks like plenty of people are taking the later view.
2. Different vehicles
Of course, when we’re talking about the old way of itemizing charitable deductions, we're mostly talking about cash contributions. There are other ways to give that do still provide tax benefits and, in some cases, enable larger and more sustained giving strategies.
One that's really grown in popularity as more boomers hit retirement age is making a qualified charitable distribution (QCD). Folks age 70 ½ and older can send up to $100,000 in a given year directly to a 501(c)(3) charity. That QCD will not count as income, which lowers your tax burden for the year. Also, if you are age 72 or over and taking a required minimum distributions (RMD) any QCD would count toward your RMD.
Another strategy is to donate appreciated securities to a qualified charity. This is separate from a QCD because the donation can't come from an IRA or 401(k). Investors whose non-retirement portfolios include securities that have appreciated for a minimum of over 1 year can donate those securities directly to a charity avoiding any capital gains taxes while obtaining a tax deduction for the full amount of the gift.
Some folks find it beneficial to open a donor advised fund (DAF), which is an account you deposit cash, securities or other assets into for the purpose of distribution to a charity. Deposits into donor advised funds are deductible and do not have to be distributed in the year the gift was made into the DAF. In some cases it makes sense to fund multiple years of expected donations into one year in order to take advantage of a higher itemized deduction in that particular year. Sound planning is key when determining the timing and amounts to be contributed.
3. A TASTE of your values
- Altruism ("I want to do good.")
- Trust ("I believe the recipient is credible and deserving.")
- Social Reasons ("I have a personal connection to this cause.”)
- Egoism ("I want my name on a building at my alma mater.")
- Taxes (“I want to lower my taxes.”)
Rearrange those answers and you get the acronym TASTE.
But when I look at that same list of words, I see a topic that we've been discussing quite a bit on recent episodes: values.
The diverse challenges we've faced since the start of the pandemic have forced all of us to take stock of what's important to us. The most effective financial plans connect those values to your money in a way that can make your whole life more fulfilling. Make an appointment to talk to my team at Keen Wealth about integrating your values and your giving goals into your plan for 2022.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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