2020 has been unique for all of us in some form or fashion; nevertheless, The Arc of the Emerald Coast is thankful during this season for all of its supporters and donors who keep it going and allow it to continue to serve its clients and their families. Here is some relevant and timely guidance on year-end giving, most of which is unique to this year, in hopes it helps you and your loved ones find ways to continue your generosity. Expert gift planner David Saviola explains some of the frequently asked questions he gets when it comes to making decisions to give.
Top Seven Frequently Asked Questions
What is so special about giving this year?
In 2020, the stimulus bills passed by Congress were in part meant to increase charitable giving. In a normal year, you can only deduct up to 50% of your income; however, this year you can take up to 100% of your income as a deduction. This is a big deal and can really be a beneficial planning tool. For example, a retiree that has a good nest egg of tax-deferred dollars (like IRAs) might be able to access those dollars in a very tax-favorable way and increase their giving at the same time.
I don’t give enough to itemize my deductions, so what’s the benefit to me?
More good news for 2020! This year you can claim a tax credit of up to $300 regardless if you itemize your deductions or not. Generally, credits are a dollar-for-dollar reduction of your tax bill, so this is extra money in your pocket at tax time. Another way to look at it is you can give $600 and the IRS will kick in half!
What if I don’t have a lot of cash on hand (or want to hold on to it for now), what can I do?
There are special advantages to alternative gifts like stock or real estate to name a few. Assets like these that have appreciated have capital gains taxes associated with them, but by giving them to charity the donor receives the FULL market value as a deduction, and the capital gains tax also disappears. It’s like a double bonus, and there aren’t many of these in the tax code!
What if I want to give more, but I also want to leave my kids an inheritance?
Great, because not all giving is irrevocable! Certain charitable trusts allow you to give cash or other assets for a period of time, and then at the end of that period, they revert back to you, or your heirs. During the period they are “given,” income from these assets goes to charity. Another bonus of this strategy, the donor gets ALL the tax benefits upfront.
I own some investment properties, can I use them in any way for a donation?
Probably! Gifts of real estate often generate large upfront tax deductions but can also turn into a lifetime income stream. There is a chance you can give stuff away to charity and receive an income from that same gift for life!
What are other alternative gifts that I can donate?
A lot of the big donation items are covered in the above questions, but in general, just about anything that is an asset with value can be a gift! A car, a boat, land, a gun collection, mineral rights, timeshares (these can be a bit tricky), or I have even facilitated a herd of cattle gift once! The list is almost never-ending. If you have questions on what can be donated, please contact David Saviola at email@example.com
Business Owners: If you received PPP money and have been profitable in 2020, this is important information for you!
Many businesses received significant PPP money in 2020 and will qualify for complete forgiveness this year. When that occurs, the business expenses you incurred during the PPP “covered period” are NOT deductible. What does that mean? Likely a higher tax bill than the business may be planning for. What’s the solution? We can’t claim charitable giving is the ONLY solution, but it certainly is a very good one that helps organizations like the Arc and your tax bill. We have experts here to collaborate with your advisor team and are happy to chat with you more about this if you would find this valuable.