From Ambassador Advisors
Would you like to have your tax liability for 2021 completely wiped out? What would it feel like to pay Uncle Sam zero dollars in taxes for this calendar year? It is possible for this scenario to happen, if you’re strategic in your charitable giving.
BOTTOM LINE: Limits for how much you can deduct on your taxes for charitable giving have been lifted. The more you give, the more you can deduct—up to 100% of your annual income. Keep reading to learn how!
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR) temporarily increases the Adjusted Gross Income (AGI) limit on cash contributions made to charities from 60% to 100%. This is for cash gifts made in 2021 only and does not include any gifts carried over from previous years. Your ability to deduct up to 100% of your income with cash gifts is reduced by your gifts of appreciated assets, like publicly traded securities and real estate. That means your charitable deductions in 2021 cannot exceed 100% of your income but you may be able to carry unused charitable donations forward for up to 5 years.
What that means is that you can completely negate any tax liabilities owed to the federal government this year if your total charitable contributions reach or exceed 100% of your AGI. If you are 59 ½ years of age or older, and if you are able to make withdrawals from your 401k or 403b retirement accounts without any penalty, this money is normally taxable—the amount would be added to your AGI. However, in 2021, if you give 100% of your withdrawal to a charity, you will pay no income taxes on these funds. Should your charitable contributions actually exceed your AGI, your excess giving can be carried over as a charitable contribution for up to five years.
Also, consider donating appreciated non-cash assets, like stock, instead of cash. When you make such a gift, you may take a tax deduction for the fair market value of the asset, while also avoiding the capital gains tax you would otherwise incur if you sold the asset and donated the cash proceeds. This can mean even more going to charity and less to taxes. With the stock market nearing record highs, recently, this may be the best time to consider this.
If you take the standard deduction and do not itemize your deductions on your tax returns, this act still benefits for you, as well. You can deduct up to $300 (or $600 for a married couple) as a charitable cash contribution. This is an “above the line” adjustment that will reduce your AGI, thus saving you on what is owed in taxes.
Also, keep in mind, if you are 70 ½ or older, whether itemizing or claiming the standard deduction, you can direct up to $100,000 per year from your Individual Retirement Account (IRA) to United Zion through a Qualified Charitable Distribution (QCD). This method of giving is truly remarkable. Not only does it keep highly taxable income and Required Minimum Distributions from impacting your personal tax situation, but a QCD may also reduce your taxable income in future years, lower your taxable estate, and limit the tax liability of your beneficiaries.
So there has never been a better year to give.