Happy New Year! As tax season approaches and you plan your contributions for 2021, be sure to review the key components in the fiscal stimulus that impact charitable giving.

1. People who make smaller gifts will be able to deduct them up to $300

Presently, only those who itemize their income tax deductions are able to use a charitable deduction. For 2020 and 2021, an individual will be able to deduct up to $300 cash donations, irrespective of whether or not they itemize their deductions. It is now $600 per couple for 2021.

2. People who make larger gifts will be able to deduct a much higher amount

Under current law, an individual may deduct up to 60% of their adjusted gross income (AGI) for charitable deductions of cash. The stimulus package lifts that restriction, so that an individual can make a gift only of cash (so once again not stock) and deduct it up to 100% of their AGI for the year 2020 and 2021. This is an election, so the donor who wants to use this provision must tell the IRS.

3. Required Minimum Distributions (RMDs) for IRA’s are back

The CARES Act gave savers the ability to skip RMDs in 2020. In 2021, RMDs are in back force. Unless you have a Roth IRA, you’re obligated to remove a portion of your account balance each year once you turn 72. You may find that this year’s RMD is higher than expected. RMDs are based on your life expectancy as well as the amount of money you have in your retirement plan. If you didn’t take an RMD in 2020, you may have a higher balance going into 2021, leaving you on track for a larger withdrawal and more taxes. You can make a gift to a charitable organization up to $100,000 annually tax free while qualifying for an RMD.

4. IRA beneficiary v. gift in a will

Many people like to include a charitable gift in their will to support a cause that has been important in their lives. One tax smart strategy is to leave part of an IRA, 401(k), or 403(b) account to a nonprofit. It’s easy to change account beneficiaries by contacting the financial institution. Why is this smart? Because heirs pay income taxes on this money. Starting this year, heirs (except spouses) must take out all funds (and pay taxes) within 10 years of inheriting, but any part left to a nonprofit avoids these taxes. Therefore, if you plan to include a nonprofit in your will, use these accounts first.

We recommend that you consult your accountant and/or financial advisor before taking any action on the methods listed here. Your individual financial situation will determine the best course of action for you.