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This holidays season, celebrate tax breaks and give to favorite causes, all at the same time
As 2021 comes to an end, be sure to review the charitable giving provisions from 2020 COVID-19 relief legislation that carried over to 2021.
Particularly helpful to itemizers is that cash contributions to qualifying charities can be deducted up to 100% of adjusted gross income. This allowance creates an ideal opportunity to “bundle” or “bunch” charitable gifts this year, taking full advantage of the limited-time ability to offset significant levels of income.
The community foundation can help! Here’s how:
— Donor-advised funds are not eligible recipients of these limited-time cash contributions; however, designated funds and field-of-interest funds at the community foundation can qualify and are very useful philanthropy planning tools.
— Specifically, to target charitable giving to particular areas of community need (such as education, health, environment, or the arts), set up a “field-of-interest fund” to establish parameters for grant making under the ongoing guidance and expertise of the community foundation’s staff.
— Plus, field-of-interest funds can be a wonderful alternative to a scholarship fund and accomplish charitable goals even more efficiently and effectively.
— A “designated fund” is a great way to focus charitable giving on a specific agency or purpose. Over time, the community foundation's staff manages the distributions from the fund according to customized terms.
Handled carefully, the benefits of the CARES Act’s limited-time cash contribution rule can be combined with the IRS’s current standard provision for the deductibility of gifts to charity. Here’s how that could work:
— Only cash contributions to qualifying charities (which do not include donor-advised funds) are eligible for the temporary AGI tax break.
— Technically, though, the regular limits should also still apply. Charitable contributions of appreciated assets to a donor-advised fund, for example, are already deductible up to 30% of AGI.
— Although not 100% clear in IRS literature, the limited-time expansion of the AGI limitations does not appear to override or “taint” the existing limits.
— It therefore would be logical, and sound from a charitable planning standpoint, to structure 2021 year-end donations to give long-term, appreciated securities to a donor-advised fund representing a total fair market value not exceeding 30% of AGI.
— Then, cash amounting to the remaining AGI can go to charities qualifying for the limited-time tax break (such as a correctly-structured designated fund or field-of-interest fund at the community foundation).
— For this technique to be successful, however, it is critical to make the proper election when filing the 2021 tax return, indicating intent to apply the extended AGI limit to the cash gifts.
Above all, please contact the team at the community foundation for help with year-end giving. Partnering with tax experts such as attorneys, accountants, and financial advisors is a priority for us. Executing tax strategy can be a breeze when you work with our team.