New Charitable Giving Rules That Could Impact Your Estate Planning

Charitable giving is a useful tool for estate planning, and it also allows us to support the causes that are important to us. Many people are struggling during the coronavirus pandemic. Coronavirus-related shutdowns have led to massive unemployment rates. However, Americans have remained generous and have continued to support charitable causes throughout 2020, with many people focusing on helping others during these challenging financial times.

Most of us are incredibly busy and do not have time to weed through every new change in the tax code, which is already far too complicated. With recent changes in the tax code, some strategists are encouraging their clients to give to nonprofits as soon as possible and not wait until the very end of the year. Considering that many nonprofits are at risk of closing because of these trying financial times, donating as soon as possible can not only help save your favorite nonprofits, but it can also reduce your tax consequences. Multiple new tax laws have been enacted in 2020 that can help you minimize your tax liability while giving to charity, such as:

• Taxpayers who choose the standard deduction instead of itemizing can take a $300 charitable deduction
• Bunching donor-advised funds and contributions
• Receiving a double tax break from gifting a charity appreciated stock
• Transferring money from your IRA to a Charity Tax-Free

Currently, the standard deduction on income tax is $12,400 for individuals and $24,800 for married couples. Some financial experts recommend that individuals who plan on giving to charity engage in “bunching” contributions. For example, every third year, someone can contribute to their donor-advised fund with an amount of money equal to the total amount needed for three years.

That first year, the taxpayers itemize their deductions on their tax returns. During the next two years, donors make charitable contributions from their donor-advised fund and claim a standard deduction. Using this method can help donors maximize the tax benefits while continuing to be involved in charitable giving.

Another option for charitable giving involves giving appreciated stock. By doing so, you can seek an even bigger tax benefit than by simply writing a check. If you give away stock that you have owned for at least one year, the IRS will let you deduct the stock's fair market value as of the date you give it to the charitable organization. If you do not itemize your deductions, you can still avoid the need to pay capital gains taxes on any profits made by your stock. Doing so could cost up to 20% if you sold your stock and gave the charity the proceeds rather than simply giving the stock directly to the charity.

Many charitable organizations will gladly accept appreciated stock as a gift. Nonetheless, the process of giving stock to a charity is easier if you already have a donor-advised fund. Creating a donor-advised fund can help you give to charities with greater speed, making it easier to give highly appreciated securities. When the same company manages your donor-advised fund and brokerage account, it is even easier to give appreciated stock gifts to charities.

If you are age 70.5 or older, you can give up to $100,000 each year from your IRA to a charity tax-free. This process is called making a qualified charitable distribution or QCD. The charitable gift will not be included in your adjusted gross income, but it will count toward your required minimum distribution. If you have to take a required minimum distribution, and you would also like to give money to charity, this strategy can benefit you.

You will not need to pay taxes on the money you withdraw from your IRA, and the charity will benefit from your generous contribution. Keep in mind that people who typically are required to take required minimum distributions do not have to in 2020 under the CARES Act.

If you are considering giving to a charitable cause this year it is wise to speak with an estate planning lawyer. Several new charitable giving rules have been enacted that could affect your estate plan and have tax implications. Estate planning lawyers at Arnold & Smith, PLLC can help you develop a plan to make your charitable giving beneficial for your estate plan. Contact us today to schedule your initial consultation at our Charlotte, Mooresville, or Monroe offices.