NICK DIETZEN | February 9, 2021
So many of our best laid plans have been amended, cancelled and changed this past year. Even one of the oft-mentioned constants in our lives – taxes – was upended as filers had three months of extension due to the pandemic. As we look forward to a safer and less turbulent time, we can expect taxes to return to their regularly scheduled timeline of April 15. The IRS begins 2021 tax season on February 12, and individual tax returns will begin to be accepted and processed.
Those spending extra time at home may already be eager to start in on their returns or reach out to their accounting advisors. For those of you ready to dive in, I’d like to share some information that will help get you started.
Below are a couple refreshers for donors that apply to the 2020 tax year only:
- Donors who may not be itemizing deductions on their taxes have a unique opportunity to deduct $300 of charitable gifts in 2020. The $300 deduction is limited to each tax filing unit (married couples filing jointly are still limited to $300). Cash gifts made to an operating nonprofit (not donor advised funds) are eligible for this $300 deduction.
- Those donors who do plan to itemize and were particularly philanthropic in 2020 may deduct up to 100% of your adjusted gross income using charitable gifts of cash for the 2020 tax year. This opportunity again applies to operating nonprofits.
Tax Season Tips
“Tax season” is a great time to not only prepare and file your taxes, but also a time to reflect on how the past year’s financial situation turned out. Here are a couple ideas to consider as you reflect on 2020 finances and how your charitable giving may be informed for 2021.
- Stimulus Check: Did you receive a stimulus payment in 2020? If you did, many are asking, “Will this payment will be taxed as income?” As it turns out, your stimulus check isn’t “income,” but rather acts as an advanced payment of a tax credit. Tax credits are not taxable income. If this is a surprise to you, it may be a nice opportunity to consider donating some of those proceeds if you are in a position to do so – and your favorite charities will be grateful for the nice surprise! Additional stimulus payments to individuals are forthcoming, so you may have another opportunity to pass along a stimulus check to your favorite nonprofit(s) in 2021.
- Gain Swap: 2020 was a turbulent year for investors, but also a very profitable one for many. If you are an investor who had a positive year and the 2021 market volatility has you researching terms like “short squeeze” and “GameStop,” how about another term to consider: Gain Swap. This concept might have fewer trending news articles at the moment, but the idea of a charitable swap might be new and exciting to you nonetheless.
- This strategy is a savvy charitable giving option that doesn’t require you to make large changes to your investment portfolio.
- The idea of a charitable swap is to donate some or all of your appreciated stock and then purchase new shares to keep your investments and portfolio intact. The benefit is the capital gain is removed. Note that there is no waiting period in executing this strategy as the sold shares are capital gain property and thus the “wash sale” rule does not apply.
- Donating appreciated assets (held over one year) yields two tax benefits: the tax deduction equals the value of the appreciated assets, plus you are not subject to paying capital gain taxes.
As with all charitable strategies and tips, please consult your professional advisor to help determine what options may be best for your unique financial situation. We are grateful for our donors, as well as the professional advisors who assist their clients in making charitable giving a success in Santa Barbara County.
Wishing you good health,
Nick Dietzen, Major Gifts Officer
To learn more, contact Nick at NDietzen@SBFoundation.org or (805) 880-9352.
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