OK, 2020 is about to close. And folks are out there scrambling on the last minute details of Christmas and “doing what needs to be done” on financial planning/charitable giving for the end of the year.
We asked our Director of Planned Giving Services, Bob Shafis, to give us the lowdown on the key things to watch and do during these last days of the year. The rest of this blog is sage advice from the master himself.
The end of the calendar year is traditionally a time of looking back on the year about to close. For many, this means trying to gauge what needs to be done to maximize a number of things: tax savings, retirement fund planning, and assuring support of the charities that the donors love.
Your role at this time is to help them see what they can accomplish, and to help them reach those goals. Here is what you can you do help.
First, talk to your donors about maximizing their charitable income tax deductions. 2020 has posed some different challenges. For instance:
- For those who don’t itemize deductions (the vast majority of taxpayers), they can still take advantage of a special $300 charitable deduction per tax filer for non-itemizers in 2020. Make sure they know about this so they can make a cash gift to your organization by December 31, since it will expire in 2021.
- There’s a Standard Deduction that all non-itemizing taxpayers also get, which is $12,400 ($24,800 for a married couple). The only things which may be itemized are state and local taxes (capped at $10,000), mortgage interest (with some limitations) and charitable deductions. It only makes sense to itemize if you exceed the standard amount.
Many larger donors can make year-end charitable gifts which will push them over that amount. Tell them to make a gift by year-end.
Some donors can benefit by “bunching” their charitable gifts into a donor advised fund (DAF). Tell your donors who make gifts through DAFs to consider this.
- In 2020, a donor has the ability to have an unlimited deduction of cash, and this will expire after 2020. The persons who can benefit from this are rare, but be sure to remind your biggest donors about this.
- Individual Retirement Accounts (IRAs) may be the source for direct gifts to charity each year. An IRA owner who is 70 ½ or older may give up to $100,000 to charity each year. There are a number of benefits, including the fact that the distribution will not be taxable to the donor. Since this is becoming a very popular way for many donors to give at year end, you will need to remind donors who have made such gifts in the past, or who are 70 ½, that this is a great time to make a gift from their IRA.
- An IRA gift also counts toward the Required Minimum Distribution (RMD), which is the amount that an IRA Owner must distribute, and be taxed on, each year. RMD requirements were suspended for 2020, so this benefit doesn’t exist this year. If this is important to the donor, they should wait and make the gift on January 1, 2021.
Most of the gifts mentioned above must be direct gifts to charity, and can’t be planned gifts; but planned gifts have a place in year-end strategies. Gifts like:
- Charitable Gift Annuities (CGAs) and Charitable Remainder Trusts (CRTs) also generate charitable deductions which may be used to exceed the standard deduction. A gift by year end to create a CGA or CRT can help a donor maximize their deductions.
- Smaller CGAs may not help the donor exceed the standard deduction, but the partially tax-free payments it generates can be very beneficial. Let all of your potential planned gift donors know they should create their gift by December 31.
Bob also points out that there are some very important things to remind your donors about, related to how they deliver their gift to your organization. For instance, a gift mailed through the US Postal Service must be postmarked by December 31 to count as a 2020 gift, even when it arrives in the new year. However, gifts made through a private delivery system, such as FedEx, are considered effective when they arrive, not when they were sent. This important rule should be told to all your donors. (I did not know this. Thank you, Bob!)
One last thing to talk to your donors about is this. 2021 is a year when your donors should be vigilant to new tax law changes.
- RMD, mentioned above, will be enforced again in 2021, and so there is an additional reason to make IRA gifts in 2020.
- There is an excellent chance that there will be tax law changes, some of which will affect how donors benefit from charitable deductions. Everyone should stay tuned.
Finally, this is a great time to review and audit your Planned Giving program, or plan to start one. Veritus Group offers a free Planned Giving Assessment, and starting 2021 with a fresh analysis of your data will lead you realizing the hidden gifts within your data. If you would like a free Planned Giving Assessment, let us know by clicking here.
To get all of this information out to all your donors, or selected donors, you could produce an email and copy the most pertinent elements of this blog and send it to them. But do it today or tomorrow. December 31 is just around the corner.
And remember, we’re happy to help you with any of this. Just let us know.
Wondering if you could provide some tips for Planned Giving for the Canadian system as much of the above regarding investment/tax info does not apply. Thank you!