There will come a day when we'll all look back on the year 2020 with the realization that we somehow endured so much: a once-in-a-lifetime global pandemic, significant market volatility, ongoing social concern and unrest - along with the sacrifices we have made in our own lives. It’s truly been a year like no other.
Despite the uncertainty, and perhaps because the sacrifices we made increased our awareness of how many in our communities are hurting, we are witnessing truly historic levels of generosity for charities this year. People have decided to significantly increase giving to support those who have been most impacted by this challenging environment. The Supertramp song, Give a Little Bit, includes a lyric that says, “there's so much that we need to share, so send a smile and show you care”. This sentiment has never been truer than in this year of struggle. The statistics certainly reflect this; in the first half of 2020, there was a 46% increase in dollars given and a 44% increase in the overall number of gifts to charities, compared to 2019.1
Do you find yourself wondering how you can make a difference during these unprecedented times? While the needs will likely persist well into 2021, it is also possible that the tax codes and the tax-related benefits of charitable giving may change next year. Given that, here are a few strategies to consider to help make charitable giving both tax-smart and impactful –
Give appreciated non-cash assets
For those who itemize deductions, appreciated assets such as stocks, ETFs, and/or mutual funds that have been held more than one year may offer an additional tax benefit in comparison to cash donations.
New tax incentives for charitable giving were included in the CARES Act. The law gives donors who plan to take the standard deduction the option to claim an above-the-line deduction of up to $300 for cash contributions to charities.
For those who find their itemized deductions to be just below the standard deduction, it may help to bunch charitable contributions for 2020 and 2021 into one year in order to take the (higher) itemized deduction amount.
Set up a Donor Advised Fund (DAF)
These instruments were mentioned in last month’s newsletter. Because annual income tax deduction limits for gifts to public charities are significant, DAFs may be set up by individuals for charitable giving to take advantage of those tax benefits. DAFs are the fastest growing method of charitable giving and are offered by many organizations, including Fidelity and Schwab.
Make a Qualified Charitable Distribution (QCD) of IRA assets
Whether itemizing or taking the standard deduction, individuals age 70 ½ and older can direct up to $100,000 per year tax-free from their Individual Retirement Accounts (IRAs) to charities through QCDs. By reducing the IRA balance, a QCD may also reduce the donor’s taxable income in future years, lower the donor’s taxable estate, and limit the IRA beneficiary's tax liability.
Convert retirement accounts (IRAs) to Roth IRAs
Individuals who have tax-deferred retirement accounts such as traditional or rollover IRAs can use charitable deductions to help offset the tax liability on the amount converted to a Roth IRA. The benefits of a Roth IRA are tax-free growth, potentially tax-free withdrawals, and no annual required minimum distribution.
Did you know that 65% of all Fortune 500 companies offer matching gift programs, but approximately $4-$10 Billion dollars in eligible matching funds go unclaimed each year? 84% of donors say they are more likely to contribute, and 1 in 3 contribute more when there are matching funds available. Be sure to check to see if your company matches and “double” your gift. 2
Below are a couple of resources to help you develop your own charitable giving strategy:
News and Upcoming Events
- Quick Call (30 minutes)
- New Client Introductory Meeting (60 minutes)
- Financial Plan Review (60 minutes)
- Investment Plan Review (60 minutes)
December 1 - Giving Tuesday
#GivingTuesday is the first Tuesday after Thanksgiving
December 7 – Medicare Annual Election period ends
- Last day to finalize 401(k) and 403(b) contributions
- Last day to set up self-employed 401(k)
- Last day to pre-pay 2021 residence property taxes for 2020 discount
- Last day to gift to reduce future estate taxes
Financial Articles of Interest
|Five Financial Goals for the New Year|
|Six Tips for Planning Your Charitable Contributions|
|Green Bonds and the Path to Socially Responsible Investing|
In this final month of 2020, my team and I wish you and your families a joyous and memorable holiday season and a safe and healthy 2021. We are truly thankful for each of you and the trust you have instilled in us. Our hope for the future is more days of peace, love, and laughter for us all.
1 – Wealth Management Magazine November 2020, Eight Steps for Year-End Giving by Bruce Debosky
2 – Double the Donation. https://doublethedonation.com/tips/matching-grant-resources/nonprofit-fundraising-statistics/