Year-End Charitable Giving and the Pandemic
By A. Scott White, CFP®, ChFC®, CLU®
President, Scott White Advisors
During this time of year, I frequently get questions about year-end charitable contributions. And that’s not surprising; although many donors make charitable gifts throughout the year, the majority of donations are made in the fourth quarter.
This year, donors may be influenced by COVID-19 as they make their charitable decisions. Some donors want to fund programs that help people whose lives have been affected by the pandemic. Food banks, community service providers, and health clinics for the underserved are receiving support from donors wanting to make a difference for families and individuals who have lost jobs or whose resources have declined due to COVID-19. According to the Chronicle of Philanthropy, nonprofits have seen significant increases in demand for services.
Recent tax law changes have affected giving trends. Fewer taxpayers are able to reduce their taxes by making deductible contributions, because many filers are better off taking the standard deduction rather than itemizing. The Coronavirus Aid, Relief, and Economic Security Act (CARES) however, allows taxpayers taking the standard deduction to claim up to $300 in charitable deductions as well. To qualify, donations must be made to a registered nonprofit organization with a 501(c)(3) designation from the IRS.
Since the laws changed, many taxpayers don’t have enough itemized deductions to exceed the standard deduction. To exceed the standard deduction, one tax-efficient strategy is ‘bunching’—where multiple years of deductions are grouped into a single year. Bunching is a way to increase your charitable giving in this tax year to help you exceed the standard deduction.
You can ‘bunch’ a few years of charitable contributions by utilizing a charitable donor-advised fund. By donating more than one year of charitable contributions to a donor-advised fund, you can deduct the full amount of the donation this year—resulting in a larger charitable deduction for this year. By using a donor-advised fund to bunch multiple years’ worth of donations in a single year, you can receive maximum tax benefits for your charitable contributions.
When you contribute gifts to a charity through a donor-advised fund, you become eligible to take an immediate tax deduction and then make grant recommendations to qualified charitable organizations in a time frame that works for you—whether that’s all in one year, or over several years. Also, the funds in your donor-advised fund have the potential to grow tax-free.
Raymond James Charitable manages donor-advised funds for many of my clients. This year it entered into a partnership with the Center for Disaster Philanthropy (CDP), a national resource dedicated to helping donors maximize their impact by making more intentional disaster-related giving decisions. CDP keeps close contact with non-profit agencies worldwide and has firsthand knowledge of exactly how funds are being used by these organizations during a crisis. CDP has recommended a list of organizations for our donors to consider as the best options for providing relief as it relates to the pandemic. That list is available on the Raymond James Charitable website1.
The Funding for Coronavirus (COVID-19) site is another valuable resource that shares the many ways funders have already responded to COVID-19.2 Updated frequently, the page offers the latest information, including published requests for proposal submitted for emergency financial resources for individuals and small businesses facing hardships, as well as new funds established specifically in response to the pandemic.
Regardless whether your year-end gifts will include supporting services related to COVID-19 or other types of nonprofits, planning your donation strategy now will give you time to make tax-efficient gifts that reflect what matters to you and your family.
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Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented here in, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.