Five Ways a Scarlet Knight Can Maximize Charitable Giving During COVID-19
By Charles J. Lewandowski CFP© MBA
The COVID -19 virus has impacted many institutions of higher learning. Unfortunately, due to its location at the epicenter in the United States, Rutgers University may be impacted more than most. There has been a tragic human toll in the New Jersey/ New York metropolitan area causing all organizations to re-think traditional methods of operating. The new routines, while saving human lives, have resulted in actions that turn education methods on their heads. One can only imagine the financial damage the virus has caused in the short term, while long term effects remain unknown. As a friend of the University, you may be looking to assist the furthering of Rutgers mission during this difficult time by making a charitable donation. Here are five ways that those who bleed Scarlet can maximize that donation.
1. Sell Securities at a Loss and Donate the Proceeds – An unfortunate biproduct of the pandemic’s economic fallout is a decrease in the value of stocks, bonds, and other assets. If a holding is now worth less than what you paid, you can sell it at a loss and potentially establish it on your tax return by offsetting gains from other investments or other income. You can re-purchase the investment after 30 days and still be able to recognize the loss. This “Tax-Loss Harvesting” creates some benefit from an unfortunate circumstance.
2. Donate Appreciated Securities– Although many investments are showing losses at this point, many executives, former executives, and long-term investors own large amounts of stock in successful companies that have significant value. A donation of shares can maximize their giving activities. For example, Joan was employed by a very large New Brunswick based company for over 20 years. Each year, she received stock grants and other bonuses for her accomplishments. Joan is now retired, and she still holds the shares that she was issued. Joan would like to donate to the Art Museum at the University. Joan could sell some shares and write a check for the donation. But that would cause a tax bill for capital gains and effectively reduce the donation for the University. Instead, she should instruct her broker to directly transfer the shares to the University’s Foundation. By doing that, she would receive donation credit for the full value of the shares and no tax bill.
3. “Bunch” Donations to Maximize the Donor’s Tax Deductions– Many donors assume that by giving to an IRS designated 501(c)3 charitable organization, they will automatically receive a deduction on their tax return. Unfortunately, the Tax Cuts and Jobs Act of 2017 dramatically altered the deductibility of charitable donations. The 2017 Act increased the standard deduction to $24,000 for married couples and $12,000 for individuals. After the passage of the Act, if the donation did not cause the taxpayer to exceed those amounts, the donation was essentially not deductible. Alternatively, the donor could “bunch” the donations. If a donor planned on making donations each year for several years, he or she could make one large donation which represents several years commitment. In that way, the donor would have greater opportunity to exceed the standard deduction for that particular year and receive a deduction.
4. Utilize a Donor Advised Fund to Bunch Donations and Create Grants – A Donor Advised Fund (DAF) is a great vehicle to provide tax benefits and create revenue streams for charities. Let’s say Joan still has a large amount of company stock which she has accumulated over the years. Joan is also charitably inclined and has committed to endow a scholarship at the University over the next 5 years. Joan can transfer the shares to a qualified Donor Advised Fund and receive credit for a potential tax deduction for the full amount of the donation. She could then direct the DAF to pay out a set amount to the University over a 5-year period to fulfill her scholarship commitment. Both she and the University benefit immensely.( For more on Donor Advised Funds, click here)
5. Over 70 1/2? Take Advantage of a Qualified Charitable Donation – If you have an IRA and you are over age 70 ½, the IRS will allow you to directly transfer up to $100,000 from the account to a registered 501(c)3 organization without incurring any taxes. Although the taxpayer will not receive a deduction, this method may be preferred over donating appreciated stock. Here’s why. Let’s say Joan has a large IRA and appreciated stock. Unfortunately, Joan passes away. Joan’s beneficiaries will receive their portion of the IRA, but they are required to withdraw it over a ten-year period and pay taxes on the income. Conversely, when Jane’s heirs receive the appreciated stock, they also receive a “step-up in basis” which can significantly reduce the tax impact of the inheritance. Also, there isn’t a time requirement to liquidate the stock. Janes’ heirs would most probably prefer the appreciated stock. The University would be happy with either option.
6. Bonus Nugget! Don’t Forget Your Company Match – Many corporations encourage charitable giving by their employees. Check with your employer’s benefits department to see if they will match your donation.
We are present in a time where many individuals and organizations require monetary assistance. If you have the means to help, you can reduce the need while benefiting personally using the techniques that I’ve mentioned. If Rutgers University is on your list of favored charities, contact the University Foundation to see how you might help. Willie the Silent would appreciate it.
06/2020
The views and opinions expressed herein are those of the author and may or may not represent the views of Capital Analysts or Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. As with all investments, past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss. Donor-advised funds may charge a fee for the services they provide. The donor can make grant recommendations to support his or her favorite charities and advise how the account assets are invested; however, the donor doesn’t have legal control over the investment. None of the information in this document should be considered as tax advice. You should consult your tax advisor for information concerning your individual situation.
Advisory services offered through Capital Analysts or Lincoln Investment, Registered Investment Advisers. Securities offered through Lincoln Investment, Broker Dealer, Member FINRA/SIPC. www.lincolninvestment.com West Coast Financial Group, Inc. and the above firms are independent and non-affiliated. Tax advice is not offered through, nor supervised by Lincoln Investment or Capital Analysts.