“Previously, the CARES Act allowed single filers to take a $300 deduction for charity above-the-line, which means non-itemizing,” he said. “The recently signed bill doubled that amount for those who are married and filing a joint return. So it’s $300 for single and $600 for married, filing joint returns. Anybody can take, that whether they itemize or not.”
Those going the itemized route would need to exceed the standard deduction, which is $12,400 for a single filer or $24,800 for a married, joint filing to get any benefit from charitable deductions, Powell said.
“In a typical married joint filing in Ohio, state (and) local taxes are capped at $10,000,” he said. “So you may have state and local real estate taxes and all that that may be $15,000, but you get capped at $10,000, so that only leaves $14,800 for other deductions.”
Those “other” deductions could include mortgage interest, medical expenses and charity, Powell said.
“You kind of have to look at that and say ‘Alright, how much would I have to give to get any benefit at all because if I didn’t have a mortgage and no big medical (expenses) then ... I need $14,800 of charity to even get one dollar of benefit for itemizing,” he said.
For those who are able to do it, front-loading a deduction by bunching and bundling allows people to donate multiple years of funding to a charity in one year while gaining tax incentives across several years.
“We’ve told (people) to use donor-advised funds, things with some of the community foundations, where you can put money in, get a charitable deduction and then spend the money out of that fund over the next two or three years to the charities that you want to give them to,” Powell said.
In years past, a taxpayer could give 60 percent of his or her adjusted gross income (AGI) as a cash donation and take a deduction for up to 60 percent of that AGI, Powell said. However, a recent law not only increased that amount to 100 percent, an even newer one this week allows for it to carry over for 2021, he said.
That’s a lofty giving amount and something likely to be reserved for someone wealthy and retired and “very charitably inclined,” Powell said.
“We’re in rare air when people are doing that,” he said. “There’s very few people who can do that."
Those who are older than 70-and-a-half years old and have an individual retirement account (IRA) can donate as much as $100,000 out of that retirement plan directly to a charity via a trustee-to-trustee method and without a draw, Powell said.
“You don’t get a deduction, but you end up not picking up that required income in your return, which is in effect, an ordinary income deduction for federal and state tax purposes,” he said. “It’s the best way to do it because it’s an above-the-line deduction. This way, you wouldn’t even report the income on your return.”
5 tax tips for charitable giving
- If over 70 ½ years of age, consider gifting from your IRA (Qualified Charitable Donation) first since that tends to be the most tax efficient method of gifting. It is suggested to work with one’s IRA custodian, as the charity needs to receive this directly from the IRA.
- Another tremendous charitable technique is to contribute appreciated stock to charity. You receive the fair market value as a deduction, but you aren’t taxed on the appreciation.
- If you don’t itemize, you can contribute $300 if single/$600 if married filing joint (MFJ) return and still receive a deduction.
- Don’t waste the “free” standard deduction ($12,400 single/$24,800 MFJ). If you are gifting, but not enough to itemize, consider bunching multiple years of gifting into one year to exceed the standard deduction for one year, and then take the standard deduction for the years bunched. Using a donor advised fund to do this allows the higher deduction in Year One, but allows you to distribute the charitable dollars to organizations over the next few years.
- For the highly philanthropic, the AGI limitation was raised from 60% to 100% for the years 2020 and 2021, allowing more charitable dollars to be given without limitation.
Source: Clark Schaefer Hackett
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