In 2021, taxpayers who do not itemize are allowed to deduct up to $300 ($600 married filing jointly) of cash contributions made to qualifying charitable organizations.

Individuals are allowed to deduct contributions to qualifying charities subject to limits based on adjusted gross income (AGI). For example, an individual’s deduction for a cash contribution to a qualifying charity is generally limited to 60% of AGI. The limits range from 20% to 60% and depend on what is contributed and the type of charity. Excess contributions are carried forward for five years. For 2021, a taxpayer may elect to apply 100% of instead of 60% for cash contributions.

An individual may deduct the fair market value of long-term capital gain property, subject to a 30% limitation of AGI. For example, if you donated an appreciated stock that you have held for more than a year to a qualifying charity, you would deduct the fair market value subject to a 30% and never pay taxes on the gain.

Something to consider is establishing a donor advised fund. This is essentially setting up your own charity. Most brokerage houses and financial institutions offer this service either for free or at very minimal cost. Assume you had unusually high income in 2021 and that is pushing you into a higher tax bracket. You set up a donor advised fund and contribute $100,000 cash. The contribution is subject to a 60% AGI limit. You then direct the donor advised fund to make gifts to your favorite charities over the next several years.

Or consider this example, again, assume you had unusually high income in 2021 and that is pushing you into a higher tax bracket. You also have a stock that is worth $100,000 that you paid $10,000 many years ago. You establish a donor advised fund and contribute the stock. You deduct the $100,000 subject to a 30% AGI limitation and never pay tax on the $90,000 gain. Your fund sells the stock and diversifies. You direct the fund to make gifts to various charities of your choice whenever you wish. This may be over a period of years.

Of course, there are additional rules if you donated art, private company stock, real estate, etc. If you plan to make a large or unusual contribution, your Dent Moses advisor is always available to help.