Help clients make the most of 2020 charitable giving

As the year draws to a close, many clients are pursuing charitable giving. Mike Landsberg, CPA/PFS, partner at Homrich Berg in Atlanta, discusses what he’s seeing in terms of charitable giving this year, how the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, has affected giving, and how clients can use giving to save on taxes while contributing to causes that matter to them.

What you’ll learn in this episode:

• Why 2020 is a good year to give to charity. (1:43)
• How the CARES Act has affected charitable giving. (2:47)
• Giving strategies clients can use to save on their taxes (5:03), even if they’re not high-net-worth. (8:25)
• How to start talking about charitable giving with your clients. (8:59)
• One way to help clients specifically interested in COVID-19 relief. (11:11)

Play the episode below or read the edited transcript:

To comment on this podcast or to suggest an idea for another podcast, contact Courtney Vien, a JofA senior editor, at Courtney.Vien@aicpa-cima.com.

Transcript:

Courtney Vien: December is here, and many clients are thinking about giving to charity before the tax year ends. But what does charitable giving look like in 2020? To gain some insight on the charitable giving landscape in this unusual year, we spoke with Mike Landsberg, CPA/PFS, a principal at Homrich Berg in Atlanta. He talked to us about what he’s seeing from his clients, charitable giving strategies clients can use to reduce their tax burden, and reasons why 2020 can be a great year to give.

Hi, Mike. Between the pandemic and the presidential election, 2020 has been a historic year. What have you been seeing in terms of charitable giving?

Mike Landsberg: So, for this year, I think it really depends on the person or family’s specific situation. I found for my clients that, for the most part, they’ve been pretty fortunate throughout all this, not having material disruptions to their jobs or businesses. So as such they realize how charities are hurting even much more this year than normal, and they’ve opted to either accelerate some of their charitable giving or at least take a harder look at it. So this, of course, has all been done in conjunction with their overall philanthropic planning goals, with their entire financial picture in mind, but I’m finding clients are more receptive this year given everything that’s going on.

Vien: This year, many charities need more help. But are there are other reasons that this is a good year to give?

Landsberg: 2020 is as good a year as any to be charitable. Now aside from charities needing more money, just given their inability to throw fundraisers and other events, things that really drive their entire balance sheet for the year, the stock market is at all-time highs or near all-time highs at least, so gifting appreciated securities has been a really popular strategy lately. Plus, despite all the noise, we’re beginning to gain some clarity on some of President-elect Biden’s proposed tax policies. Now, of course, no legislation is ever passed without some degree of tweaking, but in this case benefits of giving to charity could be substantially diminished or limited for high-income taxpayers. Now with that potentially coming down the pike in future tax years, donating in 2020 has become that much more attractive, just so you can lock in with the uncertainty in the future potentially. Obviously, people don’t give to charity just for tax reasons, but it certainly makes it a lot more compelling, as I’m sure you can imagine, to get some kind of benefit for the money given to qualified charities. 

Vien: The CARES Act was passed earlier this year. How has that affected charitable giving?

Landsberg: Now the government stepped in during the depths of the pandemic and announced the CARES Act, which is the Coronavirus Aid, Relief, and Economic Security Act [P.L. 116-136]. Now among other of the many amazing things that it did is it actually allowed for a $300 above-the-line charitable deduction for taxpayers. Now some backstory here: So you’re only able to deduct donations given to charity if you itemize on your tax return. Before 2017 when the Tax Cuts and Jobs Act [TCJA, P.L. 115-97] was put into effect by President Trump, about 30-plus percent of Americans itemized on their tax return. So if they made charitable gifts, they were able to get some kind of tax deduction, but when those — when the [TCJA] was put in place a couple years ago, that number fell from 30-plus percent of itemizing people to less than 10% now who just take the standard deduction, so a lot of people aren’t getting any bang for their buck when they give to charity anymore. So this [the CARES Act] allowed for a $300 above-the-line [deduction], which means no matter whether you take the standard deduction or itemize on your tax return, you get some kind of tax benefit. So there was this nice incentive for taxpayers who always take the standard deduction to benefit a charity and still receive some type of benefit from it as well on their tax returns.

And, otherwise, there’s no longer any limit on cash contributions to charity for tax purposes. Now historically it’s been a 60% limit on your adjusted gross income, your AGI [without regard to any net operating loss carryback]. So, for example, if you made $100,000 in a given year, you wouldn’t be able to give more than $60,000 to charity and take a tax deduction for it. Now that’s been done away with this year. I don’t know how much of a deterrent that really is, though, because you can carry forward charitable deductions for five years, but it nonetheless helps.

And one thing that did not change, though, was the limit on the amount, the percentage of your AGI you can donate in appreciated stock. So that still is 30% of your adjusted gross income. So once again if you make $100,000 a year and you donate $40,000 worth of Apple stock or something, you’d only be able to deduct $30,000 of it and you could carry forward the rest of it for the next five tax years. So those are kind of the big things that are left over from the CARES Act. 

Vien: What are some other ways that clients can use charitable giving to reduce their taxes?

Landsberg: So donor-advised funds are actually an extremely popular strategy nowadays. So the basics of donor-advised funds is that you can open up a charitable fund through any custodian, really, a Schwab, a Fidelity. There’s very low cost associated with it. You can fund it with either cash or appreciated securities, and that allows you to control when you get the tax deduction.

Let’s say you give $10,000 to a donor-advised fund this year. You get the tax deduction potentially in 2020, but it doesn’t mean you have to give that money to charity in 2020. You can dole it out over a couple different years, so it allows you to control the timing and the ultimate distribution of those assets. So a donor-advised fund is a really simple way where if you know you want to take — you know you want to try to itemize this year, you can do something called charitable bunching, which means, let’s say, you give $5,000 a year to charity usually, maybe you give two or three years’ worth in this year, so you know that you’ll be above that standard deduction hurdle and you’ll be able to itemize this year and actually get a charitable [deduction] benefit from actually giving to charity. And then the next couple years you don’t make your tax-deductible gifts, but you take that $15,000 or three years’ worth of charitable giving, you put it in a donor-advised fund this year, and then you start doling that out $5,000 directly from the donor-advised fund every year for the next two years after this one.

So it’s a very powerful strategy. and opening them in tandem with giving appreciated securities is like a slam dunk for many clients because, like I said, we’re almost at all-time highs in the stock market, a long way away from where we were back in March during the height of the pandemic, so it’s been a really good thing to be able to give appreciated securities. What that means is if you bought a security, for, you know, Apple stock for $10 and now it’s worth $50 or something like that, you would be able to circumvent paying the [tax on the] $40 capital gain. Instead of that you’d just be able to give of the entire $50 worth of stock to the donor-advised fund, take a $50 dollar tax deduction, and circumvent having to pay $40 capital gains. So that in tandem with doing donor-advised funds has been a very, very popular strategy now.

And then another strategy is a qualified charitable distribution. So another part of the CARES Act earlier this year was that because a lot of people were suffering and a lot of retirees saw their IRAs drop in value, the IRS didn’t want people to be unnecessarily penalized having to take money out at a time when the market was down so much. So they waived all required minimum distributions for anybody over age 70½.

But you can still do a qualified charitable distribution [if you are over age 70½], which means any amount up to $100,000 you can take out of your IRA and give directly to a charity and then you won’t have to pay income tax on it at all. It’ll be taken out of your IRA so you’ll never have to pay income taxes on it. So you don’t get a charitable deduction for the qualified charitable distribution, but it just doesn’t ever hit your income, so therefore you’re getting an even better benefit in a lot of cases because it won’t push you up into a higher tax bracket and it won’t affect your Medicare premiums. There’s a lot of powerful things you can do with your IRA, which is all ordinary income, and taxpayers may take money out of it. 

Vien: What about clients who aren’t high-net-worth? Is there a way they can reduce their taxes through charitable giving?

Landsberg: And then clients who aren’t high-net-worth, they may not have large amounts of appreciated stock, they might not have a huge IRA where they can do a qualified charitable distribution, but they still can take advantage of that $300 above-the-line deduction enacted by the CARES Act. So everyone’s going to be able to have some kind of benefit, if they’re charitably inclined.

Vien: How do you start a conversation about charitable giving with your clients?

Landsberg: That’s a very good question because charitable gifting can be a very personal topic, and I never try to assume or presume anything about somebody’s proclivities or wants toward that area. So one way to glean some insight without asking directly is by studying the client’s tax returns. I mean usually when you’re onboarding your client, you want to be involved in their tax situation. So we get a good relationship with their CPA and with the client obviously, and we gather tax returns and you can glean a lot of insight just from reviewing the tax returns and opening up planning opportunities. So you can simply look at their Schedule A, if they itemized, and just see how much they gave via cash or noncash items. Otherwise you can lead the topic of philanthropy into the conversation if you know they’re passionate about their alma mater or their house of worship. It’s a pretty easy conversation to have.

These are subtle ways to probe, but many times clients just don’t know the various strategies available to them, so we have a very candid conversation about donor-advised funds, about appreciated stock, all these things that allow you to diagnose a client’s situation and let him or her know about any opportunities you can come up with. Because if a client has a bunch of stock that they inherited, that has a lot of gains in it over the last 10 or 20 years, then for them they probably didn’t realize — they’ve been holding onto it for a long time because they didn’t want to pay taxes on it, well, guess what? You can give it to charity, get a tax deduction, not ever have to pay capital gains [tax] on it. So just educating clients has been a really important part of this over the last couple years. And since most clients don’t donate for the sole purpose of tax benefits, it can be a really easy conversation with them.

Given all the charities that are hurting this year, giving has come up a lot naturally in a lot of conversations with clients just because inevitably we’re discussing the unfortunate events that unfolded this year and how many are still suffering. So this usually gets the dialogue going for even the clients that may not have been historically charitable, assuming that their financial lives haven’t been too impacted by it. But even a lot of times, even if they are suffering, they realize that charities need it even more. So this has brought out the best in a lot of people.

At my firm we compiled a list of charities specifically helping those affected by COVID. So this was sent out to a lot of clients, and it was a big hit because we knew there was interest there and we have a very charitable client base, but just a lot of clients didn’t realize which 501(c)(3) charities were directing money toward COVID and which ones were vetted. And we went through a whole entire process to make sure they were comfortable with that. So it was a big hit and helped a lot of clients direct funds to the places that truly needed it. 

Vien: Once again, that was Mike Landsberg, CPA/PFS, principal at Homrich Berg in Atlanta. From all of us at the Journal of Accountancy, we wish you a happy holiday season.