5 tax strategies to make the most of your donation
The tax year is coming to a close, and the Minnesota Jewish Community Foundation is here to help. With potential tax changes coming, make the most of your charitable gifts in 2021:
1. Gift Appreciated Assets
With the continued strong market & the proposed retroactive increase in the capital gains tax rates, charitable donations of appreciated property, such as stock or real estate, are more valuable than ever, providing not only a deduction to the donor but also the potential to avoid the higher capital gains tax. Gifting appreciated assets to open a fund or add to an existing fund at the JCF is a simple, single transaction that allows you to make future donations to multiple nonprofits from your fund.
2. Up to 100% AGI Deduction
2021 likely will be the last year you can use a charitable donation of cash to offset more than 60% of your adjusted gross income (AGI). For taxpayers who are in a position to make a significant charitable gift, this may provide an opportunity. Note that contributions in excess of 60% AGI cannot be made to a donor-advised fund (DAF), so careful planning is in order to balance DAF & non-DAF contributions.
3. Gift IRA Minimum Distributions
You must take your first required minimum distribution (RMD) for the year in which you turn age 72 by December 31 of that year. Although RMDs don’t start until 72, you can still make a qualified charitable distribution (QDC) if you are 70.5 years or older. You may donate up to $100,000 of your QCD tax-free directly to one or more nonprofits. The QCD counts towards your annual RMD. The QCD must be gifted directly to a charity & cannot be added to a DAF or private foundation.
4. Front-Load a DAF
“Bunching” multiple years’ charitable donations to open a DAF or add to an existing DAF may help you reach a total of itemized deductions that are greater than the standard deduction for a single tax year. The charitable dollars will be invested for growth in the fund, increasing the sum available to give to charity. You can then make charitable donations on your own timeline. Cash added to a DAF cannot count towards the 100% AGI deduction.
5. Gift Retirement Assets in Your Estate
Assets in tax-deferred plans (IRA, 401(k), 403(b), etc.) are subject to income tax when distributed to heirs. Naming a charity, such as Federation or a JCF DAF, as a beneficiary of your plan may help your heirs avoid income tax while you give to charity. You can also use this to open or add to an existing fund or endowment.
The Jewish Community Foundation does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors before engaging in any transaction.
If you have any questions, please contact Alene G. Sussman, agsussman@jewishminneapolis.org or 952.417.2316.
To learn more about the Jewish Community Foundation of the Minneapolis Jewish Federation, visit jewishminneapolis.org/foundation.