While there are many reasons to love giving back to your community, there is one that you may not have thought about: When you donate to your favorite qualifying nonprofit, you may be able to take advantage of different tax benefits that can reduce your taxable income.
Here are three tax benefits to donating to charity.
New opportunities from the CARES Act – deducting your charitable gifts even without itemizing
Earlier this year, Congress passed the CARES (Coronavirus Aid, Relief, and Economic Security) Act, an emergency relief package, to help millions of Americans with the economic impacts of the COVID-19 crisis. The bill also offers incentives to encourage people to donate to nonprofits and support their community.
Under the new law, if you take the standard deduction when doing your taxes, you can receive a deduction of up to $300 ($600 for a married couple) in annual charitable contributions. This deduction is in addition to your standard deduction, which is $12,400 for an individual, or $24,800 if filing jointly.
This is an “above-the-line” deduction, which means it will reduce your total taxable income by up to $300 (or $600 for couples).
If you itemize your deductions, the CARES Act allows you to deduct up to 100% of your adjusted gross income in cash contributions to qualifying charities. If your donations are more than 100% of your adjusted gross income, they can be rolled over to be used in the future.
To qualify, simply make a donation to a qualified charity before the end of 2020.
Maximizing deductions by donating stock
If maintaining a healthy, balanced stock portfolio is important to you, donating assets such as stocks, mutual funds or bonds may be a smart way to achieve your financial goals.
By donating stock you’ve held for a year or more that has increased in value, you can avoid paying capital gains tax and receive a charitable tax deduction for the full amount of the stock’s market value at the time of transfer.
Generally, the nonprofit you’re donating to handles the costs of selling the stock, making the process simpler for you. Learn more about donating stock to United Way.
Avoiding taxes from Required Minimum Distributions by investing in the community
If you’re in or nearing retirement, you likely know that the IRS requires those age 72 or older (70 ½ if you turned 70 ½ prior to 2020) to take a required minimum distribution each year from your IRA. (The CARES Act waived this requirement for 2020.) These distributions are taxed as income.
If you do not need your required minimum distributions and wish to avoid tax increases, a qualified charitable distribution may be a great option. Qualified charitable distributions allow donors to contribute their required minimum distribution and even beyond—up to $100,000 each year—directly to charity and avoid including the distribution as taxable income. Learn more about your options for qualified charitable distributions or easily find your IRA custodian’s distribution request form.
Taking your investment even further
Looking for ways to take your donation even further? Just like with your finances, you can deepen the impact of your donation through United Way because one gift contributes to a variety of causes and nonprofits.
United Way supports a network of nonprofits that address many issues in our community, from immediate basic needs like food and shelter to longer-term support such as youth programming, education, job training, and counseling and more.
Your support of United Way is an investment in the lives of our neighbors and our region and creates a safety net for our community to lean on, both for everyday needs and in times of crisis. Learn more about all the ways you can help create a safer, healthier, more equitable community for all through United Way.
United Way of Greater St. Louis does not provide tax advice. Contact your tax professional regarding your tax strategies.
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