Charitable Giving for 2020
By: Gregory Long, CPA, MBA, Senior Accountant, Deleon & Stang
As 2020 draws to a close, many of us are starting to think about charitable giving.
As always, the best advice is to let your giving be guided by your good intentions.
The expanded standard deduction has led some to question the value of their contributions, but most people give because they believe in and want to support an organization or cause, regardless of whether they obtain a tax benefit.
There are several ways a person can contribute to their favorite YMCA (or other organizations):
Cash is always welcome to any organization.
Gifts of Appreciated Assets
Among the most common types of this gift is a gift of appreciated stock. For example, if you have stock in XYZ company that you have a low-cost basis in, that would result in large capital gains if the stock were to be sold, you may wish to consider donating such stock in kind. As a donor, you receive a charitable contribution deduction (if you itemize) for the amount of the fair market value of the stock. Even if you do not itemize, you will at the least have avoided paying capital gains tax on the amount of appreciation. It is also possible to donate works of art, manuscripts, land, or any other appreciated asset. However, assets other than publicly traded stock can present challenges, so it is advisable to consult with your tax advisor and with the organization prior to making a gift of assets other than publicly traded stock.
Qualified Charitable Distributions
If you are taking Required Minimum Distributions (RMD) from an IRA, it is possible to designate all or some of the RMD as a Qualified Charitable Distribution (QCD). In the case of a QCD, the organization will receive cash from the QCD. The QCD will reduce the amount of the RMD that is reported as income to the donor. There have been previous articles in the newsletter that have been published. Please refer to them for further detail. As you may be aware, the requirement that the RMD be taken is suspended for the tax year 2020. In addition, starting with the tax year 2020, the age at which RMDs must start being taken is now raised to age 72. However, if you are over 70 1/2, you may still take a QCD.
Another method of charitable giving is the creation of a Charitable Trust. This is an arrangement whereby a donor creates a trust that benefits the organization. In a Charitable Lead Trust, the trust will pay out income to an organization for a set number of years, and then return the principal of the trust to the donor (grantor of the trust).
The more common type of Charitable Trust is the Charitable Remainder Trust. In this type of trust, a donor/grantor places assets in the Charitable Remainder Trust (often highly appreciated assets with a low-cost basis). The trust will pay the donor/grantor an annuity of a set dollar amount or a set percentage of the fair market value of the trust assets for a set term of years, or for the lifetime of the donor/grantor. The remainder of the trust assets, at the termination of the trust, are then distributed to the organization. The donor/grantor is allowed to deduct the present value of the remainder interest in the trust as a charitable contribution if the donor/grantor itemizes on his or her tax returns.
All the above methods will allow a donor to claim a tax deduction if the donor itemizes deductions. The current tax code has expanded the standard deduction available for taxpayers. Some have found this is greater than their itemized deductions. In such a case, a donor may find that even if the standard deduction is more advantageous for federal income tax purposes, electing to itemize may produce greater overall tax savings because a lot of states do not have a large standard deduction. Another option in such a case is to consider “bunching” donations that might have been made over more than one year into the current year.
A donor can also consider a legacy bequest and make the organization a beneficiary under his or her Last Will and Testament.
Again, regardless of any potential tax benefit, let you charitable giving be guided by your good intentions and generous spirit. We hope you will consider the YMCA in your plans.