Jill Hitchcock is the senior executive vice president responsible for the U.S. private client group at Fisher Investments, a fee-only investment adviser.
For many, the winter holidays are all about giving, and giving to charities may feel even more important this year with so many families struggling during the COVID-19 pandemic.
If you’re in a position to give, organizations like Charity Navigator can help you find different nonprofits ranging from those that provide medical supplies to address the pandemic to others that focus on disaster relief, childhood hunger, cancer research and more. Charitable giving can be a big help for the recipients of your gift, and helping others can be hugely gratifying.
For me, involving my sons in our giving is another way I’m teaching them about money. The importance of giving to others is as much a part of their financial education as investing. We like to donate to causes we have a personal connection with. Since my husband died of leukemia, we always donate to the Leukemia & Lymphoma Society and Be the Match. And this year, I’ve gone a step further by allowing my boys to choose where some of our other donations will go. I gave them a list of organizations (those I am comfortable supporting!) to choose from and we’ve had some good conversations about why helping others is important to us.
If you’re looking to give this year, you and your family can reflect on what causes and charities have special meaning to you. You can donate to different organizations each year or stick with the same ones — potentially building personal connections within those organizations.
As you think through how to give and to which organizations, here are some reminders to help you make the most of your charitable gifts.
Donations aren’t just dollars
Donations may make you think of cash gifts, but there are other important ways to give. You can donate time, resources, expertise and more.
If you don’t have cash to donate or want to give in other ways during the COVID-19 pandemic, you could help by running errands for vulnerable neighbors, delivering meals for programs like Meals on Wheels or donating blood or plasma to groups like the American Red Cross.
My mom takes my sons shopping every November and gives them a list of foods to donate for Thanksgiving and the holidays. My tradition with the boys is to participate in our local adopt-a-family program. We try to pick a family with kids about the same ages as my sons and we buy them warm coats, new toys, and yummy treats. Doing this feels really personal because we’re shopping for specific people.
What about potential tax benefits?
While it’s not the only reason to give, you may receive tax benefits from donating cash or property.* The Coronavirus Aid, Relief and Economic Security (CARES) Act changed the rules for 2020 to encourage charitable donations during the pandemic. So, make sure you know the rules if you’re hoping to deduct.
Here are some general tax-deductibility guidelines for 2020, but, for your personal situation, it’s best to speak with your tax professional:
Save the receipts for your donations to qualified charities.
Itemize deductions, including charitable donations, on your tax return — but only if it makes sense. The 2017 Tax Cuts and Jobs Act raised the standard deduction — now $12,400 if filing individually or $24,800 if married filing jointly — which made it less cost-effective for many people to itemize. Typically, if you do not itemize on your tax return, you cannot receive a tax benefit for charitable giving.
However, thanks to the CARES Act, you can deduct $300 for cash donations to qualifying charities if you take the standard deduction for the 2020 tax year.**
Talk to your tax advisor about how the CARES Act changed rules for those who itemize in 2020, including raising deductibility and carryover limits on charitable contributions. You can also ask about strategies like “bunching” your gifts from multiple years into a single year in order to itemize once every few years, which may make sense, depending on your personal situation.
If you have money in a taxable (non-retirement) account, you may be able to reduce your capital gains tax liability by donating long-term appreciated assets (e.g., stocks, mutual funds or bonds) in kind. Selling securities in these accounts can cause you to owe capital gains taxes if you sell at a gain. That could be a big tax bill if you’ve held those securities for a long time! However, transferring securities in kind may help you avoid those capital gains taxes while doing real good at the same time.
As you may have gathered, tax rules are complex—and this is just a broad overview. For more details and personal recommendations, please speak with your tax advisor.
Regardless of the potential tax benefits, giving — financially or otherwise — can bring your family closer together, help others in need and give you a sense of purpose and connection to something bigger. Find the causes that mean the most to you and get the whole family involved. The potential tax benefits are just icing on the cake.
Wishing you a safe, healthy holiday season and a Happy New Year!
*Source: Internal Revenue Service, as of 11/20/2020. https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions.
**Source: Internal Revenue Service, as of 11/20/2020. https://www.irs.gov/newsroom/how-the-cares-act-changes-deducting-charitable-contributions.
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