Your 2021 Guide to Year-End Charitable Giving

New Bern, NC, has many wonderful non-profit organizations, and Rob and Jay love helping individuals incorporate charitable giving in their financial plans. 

Whatever your reason for giving this year, we believe it's essential to know how your charitable contributions impact your financial plan. Being strategic and intentional in your contributions can create tax benefits for you and your chosen charity.

Research Charitable Organizations

Maximize your monetary donation's impact by selecting reputable and transparent organizations. A qualified charity will have 501(c)(3) status, indicating it's federally recognized as a non-profit organization.

Third-party websites like Charity Navigator, Charity Watch, and Give Well offer unbiased, independent ratings and evaluations of charitable organizations. These sites can provide important insights into how money donated is distributed. If you're considering making a sizable donation, we recommend speaking directly with the chosen charity to discuss how they will use the gift.

If you haven't already, check with your employer about their opportunities regarding charitable giving. For example, some employers will match employee donations to specific organizations.

Consider Itemizing Your Deductions

Per the IRS, you can only deduct charitable contributions if you itemize deductions on Schedule A (Form 1040).¹ To do this, keep track of each donation made to a charitable organization throughout the year. The charity can provide you with a form to document your contribution in most cases. If the charity does not have such a form handy (and some do not), you may be able to use other forms of proof, including:

• Receipts
• Credit or debit card statements
• Bank statements
• Canceled checks 
  
  

When reporting deductions, the IRS typically wants to know a few crucial details, such as the name of the charity, the gifted amount, and the date of your gift.

Remember, itemized deductions may only have tax benefits when they exceed the standard income tax deduction, so be sure to check on the standard deduction amount for your tax filing status. Click here for 2021 and 2022 standard deduction amounts.

Make Non-Cash Donations

Many charities welcome non-cash donations, and donating an appreciated asset can be a tax-savvy move. 

For example, you may wish to explore a gift of highly appreciated securities. As you know, selling securities can lead to a taxable event. Alternatively, you or a financial professional can write a letter of instruction to your bank or brokerage, authorizing them to transfer shares to a charity.

This transfer can accomplish three things:

• You can potentially avoid the tax you usually pay upon selling the shares.
• You may be able to take a current-year tax deduction for the full fair market value of the shares.
• The charity gets the full value of the shares, not their after-tax net value.
  
  

Furthermore, if you're currently taking your Required Minimum Distributions (RMD's), you may want to consider making a Qualified Charitable Distribution (QCD). There are several benefits of QCD's: they support a charity, exclude the amount of the donation from your taxable income, and count toward satisfying your RMD for the year. Rob and Jay are happy to help if this is of interest to you.

Utilize Your Life Insurance Policy

Do you have a life insurance policy? If you make an irrevocable gift of that policy to a qualified charity, you can get a current-year income tax deduction. If you keep paying the policy premiums, each payment may become a deductible charitable donation - although deduction limits may apply. Here's an additional article on how to utilize life insurance for charitable giving purposes. 

If you pay premiums for at least three years after the gift, that could reduce the size of your taxable estate. The death benefit may be transferred out of your taxable estate, in any case.

(It would be best to consider whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications.) We recommend you talk to your insurance agent or financial professional before pursuing this strategy. 

Whatever your situation, getting advice from a tax professional or Overman Capital can help you give wisely as the year comes to a close. If charitable giving is an integral part of your financial plan, it's vital to make sure you're getting the most value out of each donation. Connect with us online, give us a call at (252) 635-6666, or stop by the office in historic downtown New Bern, NC, to learn more. 

^{1. https://www.irs.gov/taxtopics/tc506}