By Juan C. Ros, CFP®, AEP®, CEPA
Amid the ongoing coronavirus pandemic, numerous charitable organizations are in need of assistance. Nonprofits have been stepping up wherever they can to be of service to those in need such as the ones listed on this page or other similar organizations active in your own community. It is comforting and inspiring to read the many positive stories in the press and on social media about people helping each other.
Many clients have asked us how they can support their local community and how they can extend giving to members of their immediate family. We get questions continually about the best ways to give during these difficult times. This article addresses some of the changes in legislation that can make giving easier at this time.
From a tax standpoint, charitable giving is unusually attractive this year particularly with recent changes in the law. Yet, for many people, the tax benefit has seldom been the principal reason for giving. Instead, believing in an organization’s mission has been the driving force behind giving.1
Indeed, America has always been a generous, philanthropic country. According to the latest available data, Americans gave more than $449 billion to charity in 2019.2
The CARES Act recently signed into law contains provisions designed to encourage giving this year as the crisis unfolds. One such provision temporarily increases the deduction limitation on cash gifts to charity. For 2020, donors can give up to 100% of their adjusted gross income (AGI) to charity in cash gifts. Another provision allows taxpayers who are not able to itemize deductions to take up to a $300 “above-the-line” deduction for charitable gifts of cash.
Yet, even the most charitable among us sometimes feel like we cannot donate for one reason or another. Here, we highlight a handful of reasons why people might say “no” to making a charitable gift. For each of these obstacles, we describe a solution that offers a path to giving.
Three Charitable Giving Scenarios
Scenario 1: “I need to hold onto my cash right now.”
during the current crisis, holding onto cash is vitally important. However, it
is possible to give other assets to charity instead of cash.
One of the best assets to give is appreciated stock. Even after the recent market downturn, many individuals hold stock positions dating back years that remain highly appreciated. There are additional benefits associated with giving shares of appreciated stock. You would be eligible for a tax deduction at the full fair market value of the stock on the date of the gift, and you would bypass any capital gains you would otherwise have owed.
Example: Taylor owns 50 shares of Acme Inc. with a cost basis of $1,000, which are now worth $5,000. If all 50 shares are donated to charity, Taylor is eligible for a tax deduction of $5,000 and does not have to pay capital gains on the $4,000 of appreciation.
Note that if you have stock that has lost value, it is better to sell those shares and donate the cash proceeds to charity. That way you can take advantage of the capital loss to offset future gains.
Charities can also accept other assets such as real estate and business interests. Check with your financial advisor and with the charity regarding any noncash gifts you may be considering.
Scenario 2: “I am concerned about income.”
Particularly for retirees on a fixed income, the idea of giving at this time may seem counterintuitive. Fortunately, multiple charitable strategies exist that can pay income to the donor and provide a future benefit to the charity.
A charitable gift annuity is a contract between a donor and the charity issuing the annuity. The donor makes a gift of cash or stock. In exchange, the charity agrees to pay an income stream to the donor (or donor and spouse) for life. The charity keeps whatever is left. For retirees who have money sitting in low-interest-bearing savings accounts or CDs, a charitable gift annuity can usually offer attractive annuity rates as well as a charitable deduction to go along with the lifetime income.
A charitable remainder trust functions like a gift annuity in that an income stream from the trust would be payable to the donor and spouse, and whatever remains goes to charity. A charitable remainder trust is more complex than a gift annuity, but it offers tremendous flexibility in how it can be structured to meet a donor’s specific needs.
Scenario 3: “I want to help my family during these difficult times.”
Understandably, parents who want to leave most of what they have to their children may be unsure how to help elsewhere. For most families, the best way to begin is by determining how much will be enough to leave to the next generation.
Retirement plan assets like pretax IRAs or 401(k)s make ideal legacy gifts for charities, as these assets would be taxable by heirs but are not taxable to a charity. Then, heirs can receive other tax-favored assets like Roth IRAs and after-tax investment accounts. Your financial advisor and estate attorney can help structure a giving plan based on the types of assets you have that does not disinherit heirs but still provides a legacy to your favorite causes.
During times of crisis, some may choose to give to family and friends in need, providing crucial support to loved ones. As with gifts to charity, the law provides ways to make gifts to family and other important individuals in our lives.
Anyone can make an unlimited number of gifts to anyone else up to $15,000 per year (2020) with no tax consequences. Couples can combine their giving and give up to $30,000 per year per individual — called gift splitting — with the only requirement being to file a gift tax return (Form 709) reporting the gift splitting, but no tax would be due.
In addition to giving in this way, the rules allow for unlimited payment of medical or educational expenses for someone if the donor pays the institution (school, hospital, etc.) directly.
Take the example of Jane, a sophomore in college. Her parents have been laid off because of the pandemic, and they can no longer afford the $40,000 tuition per year. Jane’s grandmother Betsy can pay the $40,000 tuition expense by writing a check directly to the school. In addition, she can send Jane $15,000 in cash to cover her other expenses. Betsy does not have to report these gifts on her tax return.
One final note: Anyone can choose to give more than the $15,000 annual limit. Any amount given over $15,000 will reduce that person’s lifetime giving limit, currently $11.58 million per person (2020), but no tax would be due.
Thinking Creatively to Help Those in Need
Archbishop Emeritus Desmond Tutu once said, “Do your little bit of good where you are; it’s those little bits of good put together that overwhelm the world.”3 As a nation of generous people, the nonprofit sector relies on our ongoing donations.
We are here to help you think creatively about charitable and family giving. Please contact your advisor if you are considering assisting an organization or family member. We can help you with new and inventive ways to maintain your philanthropy and provide help and support to those who need it.
Updated on July 7, 2020
Updated on July 7, 2020
1 “The 2018 U.S. Trust® Study of High Net-Worth Philanthropy.” Bank of America, https://www.privatebank.bankofamerica.com/articles/2018-us-trust-study-of-high-net-worth-philanthropy.html
2 “Giving USA 2020: The Annual Report on Philanthropy for the Year 2019.” Giving USA, https://givingusa.org/giving-usa-2020-charitable-giving-showed-solid-growth-climbing-to-449-64-billion-in-2019-one-of-the-highest-years-for-giving-on-record/.
3 “10 Pieces of Wisdom From Desmond Tutu on His Birthday.” Desmond Tutu Peace Foundation, October 7, 2015.
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