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Philanthropy

September 10, 2021

’Tis the Season to Think About Year-End Charitable Giving

With the holiday season quickly approaching, it’s a good time to consider your charitable giving plan through the end of the year. We recommend the following steps:

  • Review your giving: Which organizations have you supported so far this year and in past years? In which areas have you focused your giving? Are there gaps you’d like to fill before year-end?
  • Coordinate charitable giving with financial and tax planning, especially if this has been a high-income year, perhaps from the sale of a business or a Roth IRA conversion.
  • Talk to your family and involve them in giving. Giving together provides opportunities to strengthen the bond among family members, work together for a common purpose, teach financial stewardship and pass down family values to future generations.

Meeting the challenges

Although an economic recovery is underway in 2021, we are still facing many of the issues from 2020, most notably those from the COVID-19 pandemic and its variants. In 2021, donors are also responding to issues of racial inequity as well as natural disasters in Haiti, the U.S. and globally. Individual donors, corporations and foundations rose to the challenge and gave generously in 2020. According to the Giving USA 2021 report, charitable giving reached a record $471.4 billion last year, with total giving growing 5.1% measured in current dollars over the $448.7 billion contributed in 2019.1 Adjusted for inflation, total giving increased 3.8%. And data indicate there may be broad philanthropic growth in the coming years with total giving anticipated to rise 4.1% in 2021 and 5.7% in 2022, according to the Indiana University Lilly Family School of Philanthropy.2

Types of charitable gifts

With just a few months left in 2021, you may be thinking about how to approach your charitable giving plan. Here we highlight some opportunities for charitable giving between now and December 31 that may help you achieve your charitable goals and maximize your income tax savings.

Cash

“Checkbook philanthropy,” or outright gifts of cash, is a simple way to make a charitable donation. In particular, making a cash donation in lieu of tangible holiday gifts can be a thoughtful approach to charitable giving.

Highly appreciated securities

Often, there are significant tax benefits to giving assets other than cash. By donating your highly appreciated securities directly to a charity, you may avoid realizing the built-in capital gain and be able to take a charitable deduction for the amount donated. Gifts of appreciated securities and other assets held for at least one year generally qualify for an income tax deduction based on the asset’s fair market value. Further, there is no limit on the number of recipients.

A few notes on highly appreciated securities:

  • Be cautious of dividend reinvestments if donating an entire holding.
  • Consider avoiding partnership interests, particularly master limited partnerships.
  • If donating a large concentration of stock in a small company, be aware of liquidation consequences.

Qualified charitable distributions

After reaching age 70½, you may make a qualified charitable distribution (QCD) of up to $100,000 per year from your IRA to a public charity other than a donor-advised fund (DAF), private foundation or charitable remainder trust. The amount of the QCD is excluded from your taxable income and is not deductible.

The distribution must go directly to charity. Further, the IRA’s trustee must send your donation directly from the IRA to qualify, and no goods or services can be received in exchange for the donation. Each QCD reduces the amount of the required minimum distribution that is taxable to you, and by lowering your adjusted gross income (AGI) you may become eligible for other deductions that otherwise would have been phased out.

Donor-advised funds

DAFs allow donors to maximize the tax efficiency of their charitable giving by generating a tax deduction when it’s most valuable to the donor, then allowing for distributions out of the DAF to charities over years to come. For example, a high earner on the verge of retirement can fund a DAF this year, lock in an income tax deduction up to the full amount of the DAF contribution, and use the DAF to support the donor’s favorite charities throughout retirement. As with direct gifts, DAFs can be easily funded with appreciated assets for even greater tax savings, and DAFs can accept complex assets like cryptocurrency, real estate and private business interests that many charities are not equipped to accept directly. Families often use DAFs to organize their charitable giving and to engage the next generation.

Private foundations

Establishing a private family foundation is a good way to establish a long-term giving mission for families looking to make substantial gifts to charity. Like a DAF, the donor can receive a tax deduction for the gift in the year donated. Foundations come with a good deal of administration, however, so they are best suited for families who wish to create a substantial charitable legacy.

Employer matching gifts

Many employers have charitable gift matching programs. Employer matching gifts are a great way to supplement your gifts to charities of your choice at no cost to you. As with many charitable giving techniques, individual circumstances must be taken into consideration and may dictate eligibility for matching gifts.

Maximizing year-end giving: Tax incentives

In 2021, the standard deduction is $12,550 for single filers and for married filing separately, and $25,100 for joint filers and $18,800 for head of household (slightly higher deductions for those over age 65), which can have the effect of limiting or eliminating the charitable deduction for those who make modest annual charitable gifts. The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 included provisions meant to incentivize charitable giving, including:

An above-the-line income tax deduction up to $300 for charitable contributions ($600 for married couples). That provides a tax savings even to donors who do not itemize.

For donors who wish to give away most or all their taxable income: Cash contributions to public charities are deductible up to 100% of AGI. Lower limitations apply to contributions to DAFs and private foundations.

Bunching charitable gifts

To preserve the income tax benefits of giving to charity, even in light of larger standard deductions, many donors have begun bunching their donations. Bunching means taking what would normally be multiple years’ worth of donations and giving them all to charity in a single tax year, resulting in one or more donations large enough for a donor to itemize on their tax return. Some donors bunch direct donations to their favorite charities, while others may opt to bunch through a DAF.

If you have any questions, please reach out to your Glenmede Relationship Manager or email PhilanthropicAdvisory@Glenmede.com.

This presentation is intended to provide a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. It contains Glenmede’s opinions, which may change after the date of publication. Information gathered from third-party sources is assumed reliable but is not guaranteed. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.