2020 has been a crazy year, and it’s not over yet! The leaves have turned and winter is coming. Take advantage of the remaining weeks this November and December for the following moves to amplify your tax savings and giving:
Deduct $300 without itemizing
This year you can deduct $300 of charitable gifts without itemizing. The $300 limit applies to for each tax filing unit. This must be a cash gift paid to an operating nonprofit (not a Donor Advised Fund).
Deduct up to 100% of your income
This year only! You can deduct up to 100% of your adjusted gross income using charitable gifts of cash. These gifts must go to an operating nonprofit (again, not a Donor Advised Fund).
Make a charitable swap by donating appreciated investments
With a charitable swap, you can donate old shares of stock and immediately repurchase new shares in the same company. Your portfolio won’t change, but you’ll remove the capital gain. Doing this brings TWO tax benefits: the tax deduction is the same size as a cash gift, PLUS you’ll avoid paying capital gains tax.
Take an immediate deduction for donating inheritance rights to houses or farmland
Consider making a charitable gift by donating inheritance rights to farmland or real estate using a special deed. Doing this creates an immediate tax deduction. (These deductions are large right now because interest rates are low.) For example, a 55-year-old donor could deed the inheritance rights to farmland before the end of 2020 to get an immediate tax deduction while keeping the right to use his property for the rest of his life.
Combine a Roth conversion with a donation
A Roth conversion moves money from a standard IRA into a Roth IRA. The benefit? All distributions from the Roth IRA are tax free. (Even distributions of future growth are tax free.) This year only, up to 100% of income can be offset by charitable deductions, including income created by a Roth conversion.
Make IRA gifts at age 70 ½ +
IRA accounts have no required minimum distribution (RMD) in 2020. But people aged 70 ½ or older can still make gifts directly from an IRA to a nonprofit up to $100,000. This gift donates pretax dollars. The earned income is never taxed because it goes directly to the nonprofit.
Move your 401k/ 403b into an IRA rollover now
Required Minimum Distributions (RMDs) will return next year for those age 72+. A qualified charitable distribution from your IRA reduces RMD. This is a great way to give! To do this with a 401 (k) or 403 (b) you must first convert the account into an IRA rollover. Avoid RMD by making the conversion this year in 2020.
IRA gifts at age 55 to 70 ½
IRA withdraws during this age are not penalized, but they are taxable. This year tax gifts can be deducted up to 100% of your income. If you are already itemizing deductions, this can offset the tax impact of your IRA withdraw.
IRA beneficiary vs. gift in a will
If you want to include a chartable gift in your will, it would be smart to leave part of an IRA, 401 (k), or 403 (b) account to a nonprofit. Because your heirs pay income taxes on inherited money, but any part left to nonprofits avoids these taxes.
Bunch gifts with your Donor Advised Fund
The 2018 tax law created much higher standard deductions. One way to deal with this is to put 5 years’ worth of donations into a Donor Advised Fund (DAF). By doing this, you can take a deduction for the entire amount this year. Because the donation is so large, you can itemize it this year. Then in future years you can make gifts to charities from your DAF.