Benefits of Charitable Giving During the Holidays

By Chris Duderstadt

November 29, 2021

Benefits of Charitable Giving During the Holidays

Key Points – Benefits of Charitable Giving During the Holidays

  • The Ultimate Benefit of Charitable Giving: Helping Others 
  • Expanded Tax Benefits for 2021 
  • How to Know If the Charity You’re Wanting to Support Is Tax-Exempt 
  • Reviewing Assets to Use for Charitable Donations 
  • Benefits of Bunching Charitable Giving 
  • Defining Donor-Advised Funds 
  • Understanding QCDs 
  • 5 minutes to read  

Benefits of Charitable Giving

It’s always nice to feel a sense of gratitude when giving a gift to a loved one during the holiday season. As we recognize Giving Tuesday, let’s also remember that there many people who are less fortunate that deserve some happiness during the holidays as well. If you’re someone who enjoys spreading holiday cheer via charitable giving, here are a few things to keep in mind. 

The Ultimate Benefit of Charitable Giving: Helping Others

Before we get into the financial ramifications, there’s no doubt that the most rewarding benefit of charitable giving is the personal satisfaction of helping others. We understand the importance of supporting charities at Modern Wealth Management.

Expanded Tax Benefits for 2021

As Gary Pratt, the senior director of development for Catholic Charities in Northeast Kansas, explained to us, “Nobody wants to talk about taxes as the reason for giving. Most people are giving because they love a cause.” We couldn’t agree more with Gary, but there are some expanded tax benefits that we want you to know about this year. Thankfully, they benefit you and the organizations you are wanting to support. 

Charitable giving has a unique ring to it this holiday season thanks to the Tax Payer Certainty and Disaster Tax Relief Act of 2020. This law was enacted in December 2020 to benefit the charities and their supporters. The Tax Payer Certainty and Disaster Tax Relief Act of 2020 extended some short-term tax changes from the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) through the end of this year. Those changes include: 

  • A deduction for non-itemizing individuals. This applies to cash donations up to $600. 
  • A 100% limit on eligible cash contributions made by itemizers this year. 
  • The corporate limit raising to 25% of taxable income. 
  • Increased limits on deductible amounts by businesses for some donated food inventory. 

How to Know If the Charity You’re Wanting to Support Is Tax-Exempt

If you’ve ever met with our tax team,  about the tax implications involved with charitable giving, she’s likely explained how charitable deductions have strict substantiation requirements. If you’ve been a long-time supporter of a certain charity, you likely already know if it’s a qualified charity. However, if you’re unsure it qualifies for a charitable deduction or are wanting to support a new organization, there are a couple of easy ways to find out.  

First, the IRS has a nifty tool for searching for tax-exempt organizations. Another way to check out the financial status and history of the charity is through Charity Navigator. We want to make sure that your hard-earned dollars are going to a cause that you’re passionate about.

Reviewing Assets to Use for Charitable Donations

Cash donations are usually the simplest way to make charitable contributions, as they can be made via cash, check, or credit card. Charitable deductions can be taken for the contribution minus whatever goods/services you obtain back. What’s more, the donation amount is on Schedule A of your tax return and filling out other forms isn’t necessary. 

Appreciated securities can also come into play with charitable contributions, specifically when donating directly to the charity. Greater tax savings are a big motivation with appreciated securities, which gain value after you purchase them. To make a charitable donation through appreciated securities, they need be purchased more than a year in advance to qualify as a long-term asset. With donating the security instead of selling it right off the bat, the capital gains tax on the growth doesn’t come into play. 

Benefits of Bunching Charitable Giving

While supporting charities is important to so many of us during the holidays, there can sometimes be unexpected expenses that come up that can create a temporary financial bind. Thanks to the ability of bunching charitable donations, you can not only make up for lost time, but also receive a tax benefit.  

Bunching charitable contributions simply means to give two- or three-years’ worth of donations in one year. You end up seeing the tax benefit when you itemize the deduction that year rather than accepting annual standard deductions. This is a popular method for taxpayers who are nearing the standard deduction amount.  

Defining Donor-Advised Funds

Speaking of concerns of making large donations in one year, let’s move on to donor-advised funds. In February, we met with Christopher Rigsby, CAP® from the Greater Kansas City Community Foundation to discuss the benefits of donor-advised funds and how to set them up 

In this case, the tax benefit results from a charitable deduction that is acceptable in the year that the funds move over to the donor-advised fund. Along with getting instant tax deduction, donor-advised funds grow tax-free. 

When your contribution goes into the donor-advised fund, it is solely used for charitable means. While it technically isn’t your money anymore, you get to make recommendations to the fund’s trustee regarding what charities receive the funds and when and how much is given. 

Understanding QCDs

For those who are 72 and have had to begin taking Required Minimum Distributions, there’s an appealing charitable giving option for you. When you turn 70.5, Qualified Charitable Distributions come into play. Through QCDs, you transfer funds directly from an IRA to a charity. Along with meeting your RMD, QCDs allow you to make a maximum tax-free distribution of $100,000 per year. This is another charitable giving option that has gained popularity because of the standard deduction amount increase. Once again, it’s because you aren’t required to itemize to receive the tax benefit. 

There is one catch in that some charities aren’t qualified to accept QCDs. Those include donor-advised funds, private organizations, and supporting organizations outlined in IRC Section 509(a)(3). Outside of the personal satisfaction, you aren’t allowed to receive benefit for your charitable contribution. Nevertheless, though, QCDs are a great way to save on taxes. 

We’re Here to Help with Benefits of Charitable Giving, During the Holidays and Year-Round

There’s no doubt that the benefits of charitable giving can make the holiday season that much more special. But why limit it to the holidays? If this holiday season won’t work for you to do any charitable giving, that’s perfectly OK. We’re still happy to meet with you about the benefits of charitable giving, what charities you’re interested in supporting, and fit it into your financial plan.  

You can schedule your complimentary consultation with one of our CERTIFIED FINANCIAL PLANNER™ Professionals today to discuss all things charitable giving. You can make your appointment on our calendar to meet with us in person, by phone, or virtually.

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Investment advisory services offered through Modern Wealth Management, Inc., an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.