5 Tax Tips for 2021

Posted in: Support

Reallocating your tax dollars to local nonprofit organizations is a great way for you to positively impact your community and the lives of thousands of children in AZ, while saving on the taxes you owe from 2021.

  1. Check out the fastest growing gift planning tool

    Gifting from an IRA through a Qualified Charitable Distributions (QCD) is one of the most tax efficient ways to give. That’s why this type of giving is growing by 50% year over year. If you are 70.5 or older, you can give up to $100,000 from your IRA to charity and not have to collect your Required Minimum Distributions. IRA distributions are taxed as ordinary income, and can affect taxes on social security and Medicare benefits. Unlike other estate assets that get a step-up in basis and are not taxable to the next generation, IRAs are taxed as income to heirs. Talk to your advisor to see if a QCD is a good strategy for you or your parents this year.
  2. Portfolio Rebalance

    The soaring stock market causes portfolio unbalanced when stocks gain significant value. This can leave an investment portfolio heavy in stocks, allocating a smaller portion of the portfolio to other asset classes often designed to mitigate risk. If there is a correction on the horizon and there is a higher percentage of portfolio in stocks, it could leave some portfolios at a greater risk of stock value loss. It is a wise time to rebalance your portfolio.

    Gifting highly appreciated stock to Junior Achievement can help you diversify your portfolio, and you will give you the same tax deduction as if you gave cash. Plus, you will not have to pay the capital gains tax on the growth of the stock, and the nonprofit won’t have to pay the taxes either (as a tax-exempt organization)!
  3. Offset Tax Burden from Asset Sales with a Donor Advised Fund

    With all the proposed tax law changes, many people were concerned about higher taxes in the future and sold property, business interests and other assets in 2021. Now they are thinking about paying the taxes.

    A charitable gift can offset some of the tax burden for people who will have to itemize their 2021 taxes. There is a great way to prefund your charitable giving in the year you need the tax break the most! A Donor Advised Fund (DAF) is like your own personal charitable savings account. The year you make the contributions to the DAF you get the tax deduction. Then you can invest the money and grant the funds to charities at the same time or in the future.

    If you have assets that have not sold yet, you can gift all or part of the asset to charity or use other charitable planning tools to help you offset the tax burden. Some gift planning tools even provide income.
  4. Utilize the Arizona Qualifying Charitable Tax Credit!

    If you pay Arizona State Income Tax you can receive a dollar-for-dollar tax credit for gifts to qualifying charities! That means rather than pay Arizona state taxes you could allocate those funds to a cause you care about! (This is not a deduction; it is a Tax Credit!)

    These different types of Charitable Tax Credits and School Tax Credits opportunities do not compete with each other. You could donate $800 to a “Qualifying Charitable Organization” like Junior Achievement of AZ (jaaz.org) while giving $1,000 to a “Qualifying Foster Care Charitable Organization” like Child Crisis Arizona (childcrisisaz.org), and still support Public and Private Schools. All can benefit from your State Tax dollars, and you can get more than $4,500 (married) dollar-for-dollar TAX CREDITS on you 2021 taxes.

    You can go to https://azdor.gov/tax-credits to learn more!
  5. CARES Act Opportunity for All!If you are planning to take the standard deduction on your taxes, the CARES Act made it possible to get a charitable deduction in 2021.  Each taxpayer can get a federal tax deduction of $300 ($600 married) regardless if you take the high standard deduction or itemize their taxes.  This is considered an “above the line” deduction for tax nerds and is designed to enhance funding to nonprofits because of the impact of COVID.  Don’t let it go to waste!

Reach out to your financial advisor or tax expert to help you determine the best tax advantaged charitable giving strategies for your situation.

Provided by Tiffany House, CAP®, CEPA Tax, FCEP


**This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Specific questions on taxes as they relate to your situation should be directed to your tax advisor.