While this year has certainly flown by, why am I writing about year-end charitable giving when there are still two months left in the year? Because now is the time to start thinking about end of year tax planning. Waiting until the actual year end can cause you to miss deadlines or make mistakes in your giving efforts. Another reason to prepare now for your planning efforts today is because we simply don’t know what next year will look like from a tax perspective. There are far too many proposals circulating around Congress as they relate to taxes, and none of them are good. The CARES (Coronavirus Aid, Relief and Economic Security Act) gives us a short window to deduct up to 100% of your adjusted gross income (AGI) of cash gifts made to charities. The biggest reason to gift, however, is because so many organizations have still not recovered financially from the global pandemic. They need donations more than ever. Here are a few ideas that can potentially help to reduce your tax bill for 2021.
1. Gift highly appreciated stock. We have seen extraordinary growth in the stock markets over the last few years, so a great way to reduce a potential tax bill when selling those stocks is to transfer them directly to a charity where you receive a deduction for the donation and the charity can sell the stocks and not incur any tax as a non-profit. It’s a win-win, you get a deduction, and they get a nice gift.
2. Qualified Charitable Distributions (QCD). You are allowed to contribute up to $100,000 directly from your IRA to a charity, and it counts towards your RMD (Required Minimum Distribution) requirement. This can be a great option for folks who don’t want or need their annual RMD. You must be 70 ½ in order to do a QCD (even though the RMD limit was raised to age 72). It’s important to note that the transfer must go directly to the charity from the IRA, not to you first.
3. Estate gifts. Among the many tax increase proposals being weighed in by Congress is a reduction in the federal estate tax limit. Currently, the limit is $11,700,000 for each spouse. There is a good chance that number will be reduced back down in the range of $3-5MM possibly. Lifetime gifts could go back as low as $1,000,000 so now is a great time to have a discussion with your estate planning attorney about ways to protect those assets.
Since it’s not too early to consider year end planning ideas, it’s also not too early to meet with your CPA to discuss ways to reduce your tax bill in general. Now is the perfect time to meet with your CPA and discuss all of the possible strategies to potentially save on taxes before the end of the year. Don’t wait until tax time to meet with your CPA because there is little they can do to help after the year ends. A tax return is memorializing history, whereas proactive tax planning is something that can potentially reduce your tax bill before it’s too late. Give them a call now instead of at the last minute when you might not have time to implement all of their ideas.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.