Tax Updates for 2021 Giving

Legislation enacted at the end of 2020 to provide additional COVID-19 relief has implications for charitable gifts made in 2021.

By Bill Zook, senior advisor, gift planning, and Allison Parker, managing director, philanthropy strategies

Legislation enacted in the closing days of 2020 to provide additional COVID-19 relief and fund the federal government for the better part of the year ahead will have implications for charitable gifts made in 2021. We’ve grouped these into three buckets: gifts of cash, itemizing deductions, and IRA qualified charitable distributions.

First, philanthropists who itemize their deductions can still elect to claim them for gifts of cash up to 100% of adjusted gross income (AGI) rather than just 60% of AGI — although donor advised funds, supporting organizations, and private foundations continue to be excluded from this provision. Fortunately, Seattle Foundation offers many other types of funds, and gifts to them can be made using cash as well as other types of assets including IRA qualified charitable distributions, which are addressed further in this blog.

One particularly timely choice is the Fund for Inclusive Recovery. It will drive investments to Black, Indigenous, and People of Color (BIPOC) leaders, organizations, and communities, which have faced the greatest barriers to opportunity and struggled with chronic underinvestment for decades. Supporting them helps create a stronger, more equitable region where everyone thrives.

As in years past, alternative AGI limits may apply when a taxpayer’s deductions derive from charitable gifts of cash and other assets. Likewise, complications can arise when charitable deductions are carried forward from prior years. Moreover, the marginal tax savings associated with charitable gifts of cash decline to zero as one gets closer to the 100%-of-AGI ceiling. Accordingly, donors should exercise caution, consider their options, and consult their professional advisors.

In addition, those who do not itemize deductions will once again be able to reduce their income for tax purposes if they make charitable gifts of cash totaling up to $300 per person – and, new for 2021, up to $600 per married couple filing jointly. Technically, this year the reduction takes the form of a decrease in taxable income, whereas in 2020 it was a decrease in adjusted gross income, a distinction that may be important for some taxpayers.

Finally, those age 72 and older are once again required to have a taxable minimum amount distributed to them annually from their IRAs (other than Roths) and qualified retirement plan accounts. In the case of IRAs, this revives the incentive for the charitably inclined who can afford to do so to work with their IRA custodian to have some or all (up to $100,000 per person) of what must be distributed to them be distributed instead directly to one or more charitable organizations. Such qualified charitable distributions (QCDs) are excluded from a person’s taxable income. Nevertheless, distributions for donor advised funds, supporting organizations, and private foundations do not qualify for this special benefit. However, other Seattle Foundation funds, such as the previously mentioned Fund for Inclusive Recovery, are eligible for QCD gifts.

Seattle Foundation welcomes the opportunity to work with philanthropists and their advisors to explore giving options that maximize both new and longstanding tax advantages while also meeting the urgent needs of our community. To learn more, contact Bill Zook at 206.388.1722.