New Tax Rules Make Charitable Giving Easier and Cost-Effective

December 16, 2020

In a year when everyone could use help, the COVID-19 stimulus act, CARES, gives donors new tax benefits for giving back.

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If 2020 has taught us anything, it is the power of personal sacrifice, kindness and giving back. The health workers who've put their lives on the line to help others survive the deadly coronavirus. The teachers who've risked their health to go back to the classroom so children who are the pandemic's hidden victims can learn. Individuals whose unsung, private yet no less impactful acts of kindness have brought hope to friends, family members, even strangers. As we look back on a year full of pain, isolation and unprecedented challenges, these acts are things we can all be grateful for. 

Your donations to UNICEF helped empower the millions of people who took just such actions. As UNICEF gears up to play a pivotal part in rolling out the coronavirus vaccine in the coming months, your support can make a groundbreaking difference. And, thanks to the CARES Act signed into law this spring, new rules will make your charitable deductions even more cost-effective for you. 

CARES, the $2 trillion federal COVID-19 stimulus package, includes a "partial above the line deduction" for charitable giving. How does it work? Those who take the standard deduction — $12,400 for people who file individually and $24,800 for married couples who file joint returns — can claim a deduction of up to $300 in donations made before the end of 2020. To qualify, the donation must be made in cash, by credit card or by check. A donation of stocks or other assets is exempt. 

Donors who have more to give can do so and save money, too 

When the Tax Cut and Jobs Act passed in 2017, taxpayers had to rethink their charitable giving. With the standard deduction for individuals and married couples nearly doubled, it became harder for taxpayers who do itemize to clear the higher deductible thresholds. And the 60 percent limit on deductions from adjusted gross income curtailed charitable giving. 

Well, that's now changed. The CARE rules have not just raised the ceiling; they've removed it entirely. If you itemize your deductions, according to Section 2205, the sky is the limit on the write-offs you can take for charitable contributions as long as you itemize your contributions. Previously, 60 percent was the maximum of adjusted gross income you could donate to charity. But now, 100 percent of your donation is tax-deductible, so if you wanted to give your entire taxable income to charity in 2020, no matter what it is, you wouldn't pay any taxes on that income.   

This is a significant opportunity for donors and the charities they support. According to the IRS, the Tax Cut and Jobs Act, which went into effect in 2018, triggered a drop in charitable contributions of 23 percent to $197 billion. The number of returns taking deduction for charitable contributions decreased 60.9 percent, with a similar 62.6 percent decrease in the number of returns claiming itemized deductions.

Now, thanks to the pandemic relief program, everyone has options. If you choose to take the standard deduction, you can reap $300 in tax savings for charitable giving, and if you itemize, those deductions can yield even greater savings, empowering those who give to do much more good. Just make sure the organization you wish to support is eligible to accept tax-deductible donations. This I.R.S. search tool can help donors decide which charity is best to donate to.

As we've seen over the past few years, changing tax laws neccessitate new strategies for donating to causes you believe in and getting a tax break, too.

Here is some advice from experts and trusted sources that can help you do both:

How to make charitable giving work for you:  

  • Take advantage of the CARES Act tax rules

  • Bunch your donations

  • Investigate donor-advised funds

  • Give stocks and bonds

  • Work your IRA

  • Calculate the tangible and intangible impact of your giving 

  • Seek qualified professional advice

Donor-advised funds — flexible, easy to manage, convenient

The Tax Cut and Jobs Act passed in 2017 required taxpayers to have more itemized expenses to make foregoing the higher standard deduction worth it. Itemizing can be tough, and many deductions people used to take were eliminated, like mortgage interest over a certain amount, state and local income tax and personal exemptions.

One solution many donors have used is to “bunch” years-worth of charitable donations into one by setting up a donor-advised fund (DAF). From a donor-advised fund you can make yearly grants to nonprofit organizations as long as they are an IRS-qualified 501(c)(3) charity. 

Although the CARES relief package tax rules do not apply to donor-advised funds, they are still an effective strategy. 

Donor-advised funds — investment accounts consisting of cash, securities or appreciated assets — are offered by many financial institutions, including Schwab, Fidelity and Vanguard, to name a few. DAFs are a great way to keep giving and getting the tax advantages that itemizing can bring. Another benefit: Your donations are invested, so your deposits can grow tax-free. According to the National Philanthropic Trust, "DAFs can reduce tax burdens after a windfall situation, such as receiving an inheritance, selling a business, or experiencing strong market returns. You can take an immediate tax deduction when you make a charitable contribution to your DAF, reducing your tax liability."

These benefits have made donor-advised funds increasingly popular and child rights organizations like UNICEF USA and other charities are reaping the benefits. According to National Philanthropic Trust’s 2019 annual report, the number of DAF grants rose 28 percent and the dollar amount donated increased 37 percent over the previous year.  

According to Fidelity Charitable, DAF donors are highly committed, engaged philanthropists, recommending more grant dollars than ever before: "Donors displayed remarkable generosity in 2019. Fidelity Charitable made 1.5 million donor-recommended grants — increasing grantmaking from $5.2 billion in 2018 to more than $7 billion in 2019. Individual grants of $1 million or more grew to 783 last year, an increase of 35 percent. Donors truly made more of a difference in 2019."

Give stocks and bonds 

Appreciated securities are another cost-effective way to make a charitable gift, especially for investors whose stock market wins have set them up for the potential of high capital gains. When you transfer ownership of long-term holdings to UNICEF USA, for example, you receive a charitable deduction for their full market value — and you incur no capital gains tax (subject to IRS deduction limits).

Learn more at this link and get assistance with making your gift by e-mailing stockgiving@unicefusa.org or calling Probyn Cope at 212.922.2470.

For taxpayers 70½ or over: Work that IRA

If you are 70½ or older, you can make donations up to $100,000 from your IRA accounts without paying taxes on the funds you withdraw. Your required minimum distributions that would have been taxed as income can be directed to charity tax-free. Since the gift doesn’t count as income, it can also reduce your annual income level. This may help lower your Medicare premiums and decrease the amount of Social Security that is subject to tax. Just be aware that if you take advantage of this strategy, you will not receive a federal charitable income tax deduction. To learn how to do an IRA rollover, click here

To find out if any of these strategies are appropriate for you, consult your tax advisor. But make sure to get the ball rolling soon so you'll have plenty of time to take advantage of these options before the end of the year.

Invest in the happiness of children — including your own

While this may qualify more as life — not tax — advice, involving children in giving back is an effective tool for producing future happiness. According to a report released by Fidelity Charitable, 48 percent of people who experienced strong giving traditions as children go on to donate $5,000 or more annually to charity — and consider themselves to be very happy adults!

And if your cause is the well-being of children, the race to vaccinate the world against COVID-19 and protect children from the pandemic's devastating fallout make giving to UNICEF now more important than ever.

  • UNICEF is gearing up to roll out the new COVID-19 vaccine. That will be tricky in low- and middle-income countries where cold chain storage and other last-mile logistics are challenging. But overcoming obstacles to reach every child is UNICEF's specialty, and with your support in 2020, you can play an important role in ensuring that the vaccine is distributed fairly, and that the light we see at the end of the tunnel shines on everyone.

  • In Yemen, five years of war and the coronavirus pandemic have sent malnutrition rates soaring. Nearly 325,000 children under age 5 are suffering from severe acute malnutrition. SAM is life-threatening, but it is also treatable. Your donations can help avert a disaster for Yemen's children and empower UNICEF to reach every child in need.

  • After nearly a decade of civil war, the situation in Syria remains one of the most significant humanitarian crises of our time, and Syria's children continue to bear the brunt. In 2020, UNICEF and partners continued delivering health care, nutrition, education support and protection to the most vulnerable — reaching millions of children yet still falling short of targets in almost every category due to lack of funding and new logistical challenges created by COVID-19. Your support is desperately needed to provide lifesaving aid to children who are still waiting for relief. 

Please help UNICEF continue all this important work and give the world's most vulnerable children the healthy, happy and safe childhoods they deserve. 

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Are you interested in sponsoring a child? Learn how you can save and protect every child with UNICEF.

Top photo: Rafi, 3, holds a box of winter clothing that his family received from a distribution at Kawergosk Syrian Refugee Camp in Erbil Governate in the Kurdistan Region of Iraq. © UNICEF/UN042749/Khuzaie