Giving with Purpose

‘Tis The Season to Spread Holiday Cheer to Charities and Loved Ones

While there are worthwhile causes every year, the global pandemic and related economic fallout left many individuals worldwide in greater need than ever. COVID-19 exacerbated hardships, with tens of millions of Americans out of work, struggling to afford adequate food and pay household expenses and rent.[1] As communities continue to focus on social distancing and variations of stay-at-home orders, the traditional holiday volunteering and community services now involve health risks.

Below are fresh giving ideas for this holiday season and year-end. Charitable giving often has benefits beyond helping to improve the lives of others. Studies show that giving money to those in need improves donor happiness more than spending it on themselves. Utilize this holiday season to incorporate philanthropy into your life and to enjoy the gift of giving.

Monetary Donations of any size are always needed. A savvy charitable giving campaign can combine your desire to help others with beneficial tax considerations. To encourage charitable giving this year, the CARES Act, passed in March as a response to the global pandemic, provided two new benefits for cash donations: (1) Individuals itemizing deductions may deduct up to 100% of their adjusted gross income (“AGI”), potentially eliminating most tax liability through charitable donations; and (2) for taxpayers that do not itemize deductions (~86% of taxpayers), there is a new $300 above-the-line charitable deduction. For both deductions, the cash contribution must be made in 2020 to a qualified tax-exempt organization, which does not include supporting organizations or donor-advised funds.

Gift Appreciated Assets to Charity. Consider making your donation with appreciated assets such as real estate or marketable securities you have owned for more than one year. If you itemize tax deductions, you benefit from a charitable tax deduction for the assets’ fair market value and avoid paying tax on the capital gain – the difference between your cost basis and the fair market value.

Donor-advised Fund (“DAF”). To make a charitable donation with a lasting impact, consider using a DAF for flexibility. DAFs allow you a charitable tax deduction in the year you contribute to the charitable fund you establish while enabling you to stretch the gifts to charities over multiple years or even your lifetime. The contributions are invested and grow tax-free, so even a little can go a long way. You have the flexibility to set up auto payments to any qualified charity or make a gift once a year. You can also give the joy of giving to others by allowing them to direct a donation to a charity of their choice from your DAF. Many DAFs, including Schwab Charitable and Fidelity Charitable, waived their minimum contributions. Keep in mind, just like any charitable donation, there can be no quid pro quo (the donor cannot receive anything in return for the gifts), and a DAF cannot distribute to a charity to satisfy a personal pledge.

Focus on Your Family with Financially Savvy Gifts

Consider whether to give your loved ones valuable tools or assets to provide for their current place in life this holiday season. While typical presents may be outgrown or become outdated, we’ve focused our suggestions to make an impact on your family and friends. Whether you are giving to a child, student, young professional, or retiree, the financially savvy ideas below should check off your naughty-or-nice list.

Annual Gifts. Generally, you must report all gifts throughout your life and upon your passing to the IRS. However, the gifts are not taxable unless you exceed your lifetime gift and estate tax exemption ($11.58 million in 2020). However, you may gift up to $15,000 per recipient (2020) without any reporting requirements or use of your lifetime exemption. For a married couple, you may gift up to $30,000 per recipient. Payment of medical and education expenses directly to the providers will also be nonreportable.

While we recommend those that can gift $15,000-$30,000 annually to their families, this does not mean everyone needs to give that amount. Each of the options below will be much appreciated regardless of the amount.

Supercharge Annual Gifts.

Supercharge the annual gift amounts above by contributing to 529 plans or Roth IRAs for your loved ones. Both accounts will grow tax-deferred and qualifying distributions are income tax-free.

Deck The Dorm Halls. Get started growing tax-free savings for college expenses by opening a 529 Plan. If you have the means, you can “front load” 5 years of annual gifts ($75,000 per individual, or $150,000 for a married couple). A gift tax return will need to be filed to report the gift, and you will not be able to gift to that beneficiary for the next five years — The upfront tax-efficient gift will be worth the wait!

You may even receive an income tax deduction depending on your state. Not all states have a state tax deduction or credit for contributions. Others require that the contribution be made to a 529 plan in that state. Other states, such as Arizona, provide a deduction for contributing to any state’s 529 plan.

Tell everyone you know that little Henry could use a token toy to open and a check for his future. Consider it your friends and family college discount! Make sure to share your unique gift code – many state’s 529 plans participate in the Ugift529.com program, though most will accept a check payable to the plan with the account number and names of the account owner and beneficiary.

Withdrawals from a 529 plan are tax-free if directed towards qualified education expenses, which includes expenses at an eligible college or university (tuition, fees, books, supplies, equipment, computer equipment and software, internet access, and certain room and board), similar expenses for certain apprenticeship programs, payments to federal and private student loans, and up to $10,000 per year per beneficiary for elementary or secondary school expenses. Note: withdrawals for any purpose other than qualified education expenses will be included in ordinary income, and a 10% penalty will apply.

Give the Gift of Compounding. If your children or grandchildren are working, your gift of cash might fund a Roth IRA to kick-start their retirement savings, compounding growth over a long period and creating tax-free income in retirement. In 2020, your employed children/grandchildren can use $6,000 of your gift to fund a Roth IRA, reduced by any other contributions to an IRA in the same year. So, be the superhero mom or auntie and contribute on their behalf.

To be eligible, your children/grandchildren must have earned at least $6,000 in 2020 ($7,000 if age 50 or older), though the maximum contribution for a taxable year is phased-out based on modified AGI ($124,000-139,000 for single taxpayers; $196,000-$206,000 for taxpayers married filing jointly). The Roth IRA grows tax-deferred, and your beneficiary can withdraw the funds tax-free after age 59 ½.

Stuff Their Stocking. Consider helping your children or grandchildren with establishing savings accounts and purchasing stocks and bonds. That’s right – Put the “stock” in stocking…literally. Make someone a part owner in a company that they love. Physical shares of stock can be purchased online through websites such as Give A Share, which also has additional items such as framed stock certificates and “I’m a Shareholder” kits. Schwab Stock Slices and Stockpile have programs that allow you to buy a “slice” or multiple slices of stock starting at as low as $5.00. Stockpile will enable you to purchase electronic or printable gift cards to assist in purchases.

Also, consider gifting appreciated assets from your portfolio to your loved ones to shift income to those that may be in lower tax brackets. For example, a young adult just starting, or an older relative that may have reduced income, may fall within a 0% tax bracket for long-term capital gains.

If your loved one is a minor, consider a custodial account. Most brokers do not charge account fees on custodian accounts and have no minimum initial deposit. Relatives and friends can deposit money or assets to the child’s account. As the child grows, spend time together on financial education. However, as compared to the 529 plans and Roth IRAs above, custodial accounts are taxable. Under the kiddie tax rules, ordinary tax rates apply to a child’s earned income, as well as up to $2,200 of net unearned income. Thereafter, parent’s rates apply to prevent abuse on the shifting of income to young children. Net unearned income includes distributions from trust and custodial accounts.

Finally, check out Acorns Early for a full financial wellness system, with investment, retirement, and checking accounts built-in for up to $5/month for all children in your household. Or, consider Greenlight debit cards, which allow a parent to set controls for each child.

Financial Planning and Estate Planning. Set your loved ones up for success in both lifetime and legacy planning. Gift a financial planning session or pay for their base estate plan.

Unwrap Financial Literacy. In our eyes, you can never stop learning. One of the best gifts you can give is the gift of financial literacy! Your Dollars, Our Sense is an international best-selling book that is the perfect gift for anyone looking to expand their personal money management knowledge and set them on the path to a healthy financial future!

Be Santa ‘Cause’ Don’t forget the gifts that still give back. When buying a gift, check if a portion of the proceeds support any charitable causes. Many charities also have gift stores online and a percentage of proceeds go to the charitable causes. And, if you are doing some holiday shopping on Amazon, always make sure you are utilizing AmazonSmile and have your preferred charity set up in your preferences. AmazonSmile donates 0.5% of the price of eligible AmazonSmile purchases to the charitable organization you select.

Whatever you give, you will be appreciated. Continue giving with a purpose this year and all the years to follow…the joy you receive from giving with be worth it.

Important Disclosure: This content is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. Some information may have been obtained from third-party sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. An investor should consult with their financial professional before making any investment decisions.

[1]   https://www.cbpp.org/research/poverty-and-inequality/tracking-the-covid-19-recessions-effects-on-food-housing-and