It would be an understatement to say that 2020 has been a year unlike any other. Given the unique challenges and difficulties this year has presented, the fact that it is winding down is reason for cheer. While this is often a time of great activity ordinarily filled with seasonal events and gatherings with friends and family, this season might look different for many. What hasn’t changed, however, is this is still a good time to count our blessings and reflect on what is important in our lives.
As 2020 comes to a close, perhaps you find yourself asking questions like the following:
- Who have I lost touch with this year that I should contact before 2020 is over?
- Are there organizations that would benefit from my support who have played an important role in my personal story?
- Are there institutions that reflect my values and priorities that would benefit from my support?
- What organizations need more support to continue serving their important missions and get through the challenges that the pandemic has presented?
- Where do I stand with my tax liability and can charitable giving help?
During this time of annual reflection and activity, it is not surprising that traditionally more than 50% of charitable giving in the United States occurs in the final two months of the year. This annual outpouring of generosity is what sustains nonprofit institutions and organizations that people hold dear.
At Goshen College we are grateful that those who care about our mission and vision continue to find ways to support us generously at year-end. We are thankful for the support we have received so far this year that has helped offset additional expenses the pandemic has presented. But future challenges remain. Whatever your reason for giving, charitable organizations like ours benefit from support now more than ever, and we hope generous people will continue to be a transformational force in our community, our country, and the world.
Here are some tips to help you make the most of your year-end giving:
Determine your tax liability for the year.
Before the hustle and bustle of the holidays takes over, consider pausing to calculate your income and determine your tax liability for the year. Did your income increase? Did you sell any appreciated assets? Will you owe more taxes? If so, this alone may motivate you to increase your giving before December 31. In fact, you may even want to move some of your giving to occur earlier than next year to create a larger charitable giving deduction for yourself in 2020, particularly in light of giving incentives included in the Coronavirus Aid, Relief, and Economic Security Act (otherwise known as the CARES Act) that expires on December 31. The CARES Act allows an “above-the-line” deduction for charitable cash gifts of up to $300 for non-itemizers in 2020. In addition, the CARES Act offers individuals the opportunity to deduct cash contributions to qualifying organizations for up to 100% of their adjusted gross income (AGI). This is expanded from the previous limit of 60% of AGI. Businesses may also deduct up to 25% of taxable income, up from the previous limit of 10%. It should be noted that this expanded deduction is for cash gifts that are provided to a public charity.
Another change that was enacted with the Tax Cuts and Jobs Act of 2017 that went into effect in 2018 was to significantly increase standard deduction amounts – virtually doubling these levels. Below are the standard deduction levels for 2020 tax returns.
2020 Standard Deduction Levels
|Single||Head of Household||Married Filing Jointly|
How do your eligible itemized expenses (charitable giving, mortgage interest, state and local taxes being the most common) stack up? Did you shift from being an itemizer last year to a “borderline itemizer” this year? If your itemized expenses are close to the new standard deduction threshold, you may find it advantageous to increase your giving before December 31 and then consider filing an itemized tax return every other year.
In any case, by the time you complete your income tax return, it will be too late to make charitable gifts for the previous year. Take the time to do some planning while you still have the opportunity to make adjustments and provide a year-end gift.
Review your investment portfolio.
As year-end approaches, it’s a good idea to review your portfolio. And in particular, it’s worth looking at the stocks and/or mutual funds you have held for more than a year to identify those that have appreciated in value. Which ones have appreciated the most? It may be prudent for you to make your year-end gift using one or more of these stocks.
Here’s why: If you sold the stock or mutual fund shares, you would incur capital gains tax on the appreciation. However, if you give the stock or mutual fund and allow Goshen College to sell it, capital gains taxes are avoided. You receive a charitable deduction for the full fair market value of the appreciated assets (subject to the deduction limits), just as you would if your gift was made with cash. If you can’t use all of the income tax charitable deduction resulting from the gift, you can carry it forward for up to an additional five years. The annual deduction limit for appreciated securities is 30% of AGI.
The fair market value for securities is the average price per share between the highest and lowest selling prices on the date of delivery. For mutual funds, the fair market value is the price per share at market closing on the date of the transfer (gift).
The flip side of giving from securities may make sense as well. If you own securities worth less now than when purchased, you can sell them and contribute the cash proceeds. This way, you can take a capital loss on your return, which you can’t do if you donate those securities directly to a charity like Goshen College.
Do your giving early.
This is especially true if you want to make a gift of non-cash assets (stock, real estate, etc.). Your professional advisor or broker may be extremely busy as the year winds down. The sooner you can get your gift activity going, the more likely you are to complete it before the end of the year and maximize its impact.
As you consider your year-end charitable giving priorities, you may benefit by considering these questions:
How much have I/we already given?
- to my place of worship
- to my school, college, or seminary
- to support health care and research
- to other important organizations
Does this amount meet/exceed my/our intended target for charitable contributions for the year? Have my/our circumstances changed in a way that I/we can contribute more?
Before making any significant gift to Goshen College or to any other nonprofit organization, you should have your CPA, attorney, and/or financial advisor help you understand the impact of your gift on your income tax return and estate plans. We at Goshen want your giving to be prudent, generous, and joyful.
We Can Help
As you can see, your tax benefits depend on what you give and when you give it. We can assist you and your financial advisors with the planning and details of making a gift to help support our mission. We appreciate your support, so we’ll do all we can for you in return. Please remember to consult your professional advisors before you make a gift.
Year-End Giving FAQs
Is my gift to Goshen College tax deductible?
Yes. Because Goshen College is qualified as a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code, all gifts to the College are tax deductible. To determine the amount you can deduct, consult your tax advisor.
Do I need a receipt to claim a tax deduction?
Under IRS rules, you cannot claim a tax deduction for a contribution of cash or other property unless you maintain a record of the contribution in the form of either a bank record (such as a canceled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution, and the amount of the contribution. In addition, for a single gift of $250 or more, you are required to have a receipt from the charity to substantiate your claim.
If you make a quid pro quo contribution — that is, when you receive goods or services in exchange for a portion of your gift — the institution is required to issue you a receipt specifying the amount of the contribution and the goods and/or services received. For example, if you attend a benefit dinner and your charitable contribution includes the cost of the dinner, then the fair market value of this dinner must be subtracted from your charitable deduction.
Does the receipt have to be a physical note?
No. An electronic receipt is just as acceptable as a letter or postcard.
When will I receive my receipt from Goshen College?
Receipts are issued as promptly as possible as gifts are received.
Do I need to provide a receipt to the IRS?
No. Just keep your receipt in a file to support your claimed tax deduction (in case you are audited). The statute of limitations for the IRS for a substantial understatement of income tax is six years, so retain the receipt for at least that long. Depending on what type of contribution you make, you may want to keep it longer. Consult your tax advisor for details.
Can I give from my retirement account?
If you are age 70 1/2 or older, the answer is yes! They may directly transfer up to $100,000 per year from an Individual Retirement Account (IRA) to one or more public charities (other than a donor-advised fund) and avoid both income and estate tax.
An IRA owner generally must take a required minimum distribution (RMD) from a retirement account when that owner reaches 72 years of age. However, with the passing of the CARES Act, RMDs have been waived for 2020 to help retirement accounts recover from potential stock market losses. This includes distributions from IRAs as well as 401(k), 403(b) and 457(b) plans.
Although this change may be seen by some as a disincentive to use one’s IRA to make a charitable gift, it should be noted that even with the waiving of RMDs in 2020, donors directing a qualified charitable distribution from their IRA to a charity in 2020 (up to $100,000 per individual) will still be able to reduce their taxable IRA balance. This allows all taxpayers – itemizers and non-itemizers alike – to direct gifts from their IRA to charities of their choice in a tax efficient manner.
Let us know if you have an interest in making such a gift and we can advise you.
What is the last day I can make a contribution in 2020?
It depends on your gift. If you’re contributing by credit card at Goshen College’s online giving page (www.Goshen.edu/Give) you have until midnight on December 31. Your credit card must be charged in the same tax year that you want to claim a deduction.
If you are sending a gift by mail the donation is effective on the date mailed as indicated by the postmark. If the envelope is postmarked by December 31 the gift is credited to 2020 even if it is physically received by the charity in 2021. The postmark is the key to your deduction and not the date on the check or the date a security certificate is signed over.
Some individuals choose to donate securities at year’s end. Many of these gifts are electronically transferred to Goshen College directly from the donor’s broker. In the case of electronic transfers, the gift becomes effective the date the funds are reflected on the charity’s bank or brokerage account, not the date you instructed your bank or broker to make the transaction. Electronic transfers can be greatly affected by volume. As we get closer to December 31st it may take several days to move your gift from one account to another. Make sure you have given yourself sufficient time to make a gift of securities.
Finally, if you are 70 ½ or older and are making a gift from your IRA, don’t wait until the last week of the year to make your gift. Companies vary in their processing times of your request. We would suggest you make such gifts no later than December 15 to allow time for your gift to count in 2020.
Have a blessed holiday season and a good 2021.
As the season of reflection and generosity approaches, please accept the thanks of President Stoltzfus and all of us at Goshen for your generous support of Goshen College. For more information about the year-end giving opportunities, contact us in the Development office. You can find us at www.Goshen.edu/Give/contact/ You may also visit our website at www.Goshen.edu/give for more information or to make a gift online. We are here to help you in any way we can.
May 2021 bring you and your family health, happiness, and prosperity!
Roger A. Nafziger
Director of Gift Planning
Ph: (574) 535-7797