Whether you want to help those affected by the coronavirus or have been considering a gift to a loved one this year, you’re in luck.
Recent tax changes and historically low rates are conspiring to make 2020 a highly opportune time to give.
Not only will your gift make life better for others—it can also boost your spirits and improve your tax bottom line.
Charitable Giving Strategies
There are numerous ways to donate to a favorite charity, depending on your situation.
Qualified Charitable Distributions (QCDs)
Individuals over the age of 70½ can donate up to $100,000 in IRA assets directly to charity each year.
While there is no tax deduction for this, the amount directed to a qualified charity is not considered taxable income.
With standard deductions nearly doubling, this is a great strategy for those not expecting to itemize.
QCDs and Required Minimum Distributions (RMDs)
Under normal circumstances, those subject to RMDs can satisfy all or a portion of an annual RMD using QCDs.
While this benefit is lost this year with the suspension of RMDs under the CARES Act, distributions to a qualified charity lower the IRA balance, thus reducing taxes that will be payable on future RMDs.
Cash Donations
Under the CARES Act, taxpayers who itemize can deduct up to 100% of adjusted gross income (AGI) in cash donations this year, compared with only 60% last year.
This is great news for individuals between the ages of 59½ and 70½ who have a concentration of IRA assets and are looking to make a large donation this year.
These people can take a cash distribution from an IRA and donate the cash to charity. (Note that the distribution must go directly to the charity, not to a donor advised fund.)
The bottom line? Donors can conceivably wipe out a 2020 tax liability through cash donations.
Donating Appreciated Stock
Those who itemize might consider donating appreciated stock to a favorite organization.
The full market value of the gifted stock can be deducted with no tax owed on the underlying gain.
NOTE: Deductions for gifts of appreciated securities did not change with the CARES Act and remain limited to 30% of adjusted gross income.
Those who do not itemize can “bunch” several years’ worth of charitable donations (using appreciated stock) into a Donor Advised Fund (DAF).
This strategy involves proactively bunching multiple years of charitable donations in one year to exceed the standard deduction threshold and then taking the standard deduction in subsequent years—yielding higher deductions and greater tax savings.
Gifting to Friends and Family
For those who want to help friends and loved ones financially during this time, there are several giving strategies to consider.
Annual Gift Tax Exclusion
Individuals can give up to $15,000 ($30,000 for couples) per family member or friend without counting against the lifetime gifting exclusion of $11.58 million ($23.16 million for couples).
Medical Care
Any payments made directly to a medical provider, doctor, or hospital do not count against the annual or lifetime gifting exclusion.
This means individuals can cover the cost of medical care if needed and give loved ones a gift up to the allowed gift exclusion limit.
Personal Loan
The applicable federal rate (AFR)—the minimum interest rate set by the IRS for private loans—has never been lower. Rates are currently running just below or just above 1%, depending on the length of the loan.
Cash loaned to loved ones at the minimum rate can be used to pay bills or can be invested—allowing beneficiaries to profit from any upside by locking into today’s low rates.
For Additional Guidance on Giving
Helping others can lessen stress and increase our sense of purpose—especially during times like this.
If you’d like to give back, but don’t know where to start, the CDC Foundation’s Emergency Response Fund, Feeding America, and Direct Relief are all helping with the coronavirus relief effort and are vetted by Charity Navigator and CharityWatch.
To help you identify a gifting strategy that will benefit recipients, give you a lift, and reduce your tax burden for an all-around win-win, we’re here.