Dec 3, 2020
As we approach the end of the year, people start thinking more about taxes and want to find ways to lessen their tax burden.
One area where you might already be lessening your tax burden and not fully realize it is through charitable donations. The holiday season brings that out even more so we want to make sure your contributions are being incorporated into your financial planning as we close out 2020.
On this episode of My Smart Retirement, Sean and Nancy will tell you about the three most significant tax changes that came with the Tax Cuts and Jobs Acts (TCJA_ from a few years ago. You might already know about these adjustments, but it’s important that everyone is aware of how they effect tax planning because it can be significant.
The first we want you to know about is that if you are making a cash contribution to a charity, you are allowed to deduct 60% of your adjusted gross income for that cash contribution. For example, if you have $100,000 of AGI and you make a contribution of $57,000, you can deduct that full amount. And don’t worry, an excess can be carried over into the next year.
Another thing the TCJA repealed is the ability to deduct a donation that’s used in exchange for buying a seat to a game. You used to be able to deduct 80% of that donation to a college or university but that’s no longer allowed. For many of the sports fans in our area, this has been a significant shift in their planning.
The third major change is that any charitable contribution in an amount greater than $200,000 has be documented in writing. Most charities will send you a letter thanking you for your donation or contribution so make sure you hang on to that.
With the changes in these laws, you have to itemize all your deductions for the charitable deductions to work. This is because standard deduction increased by a significant amount. The Tax Policy Center estimates that 9 out of 10 individuals will claim that standard deduction.
To help you understand when its best to use an itemized deduction, we’ll also break a few scenarios where this can be applied. Plus, we’ll share some strategies you might consider as you look to lessen that tax burden.
If you have any questions about charitable donations or tax planning after listening to the show, give us a call us 480-632-8770 and let us help you hold on to more of the money you’ve earned.
Use the timestamps below to hear a specific segment.
1:40 – Cash contribution deductions
2:19 – Another thing the TCJA repealed
4:18 – Third change has to do with getting record of your contribution in writing.
7:47 – The big caveat in this discussion
8:52 – What if you aren’t itemizing your deductions?
10:54 – Charitable donations as an RMD
13:10 – Another tip for itemizing deductions
For additional financial resources, visit us online here: https://www.flemingfinancialservices.com/