Prepping Your Holiday Finances

The holiday season is upon us, which means the giving season is here too. It’s time to begin prepping your holiday finances! 2020 has been a unique year that has provided increased opportunity for everyone to make charitable donations as well as gifts to family members. Let’s discuss ways you can do both and what to consider.

Charitable Giving Changes with CARES Act

Thanks to the CARES Act that passed earlier this year, anyone can now get a deduction for giving to charity in 2020. For those that do not itemize their deductions, you are eligible to take a $300 above the line deduction for charitable donations. For those that do itemize deductions, cash donations are now allowed up to 100% of Adjusted Gross Income (AGI) instead of 60% of AGI.

Research Your Charity Before Gifting

Do your research and make sure you elect the right charity to donate to. Giving your money to charity is a personal decision and you should make sure the charity aligns with your philanthropic goal. Consider using a website like www.charitynavigator.com or www.givewell.com. These sites help you evaluate charities to help you make the most informed decision.

Flexible Options for Gifting & Donor Advised Fund

If you are under a time crunch and want to be sure you get a deduction this year, but don’t have your charities identified, consider the use of a Donor Advised Fund. Donor Advised Funds (DAF) are a charitable fund established by a public charity that allow you to fund your donation in the current year for the tax deduction and then give the money out to charity over time.

Which Assets Should You Gift?

While cash may look attractive this year given the 100% of AGI threshold, you may want to consider donating appreciated assets. Donating appreciated stock is a common way that many investors fund their philanthropic goals on an annual basis. By donating appreciated stock, you avoid having to pay the capital gains tax and you may be eligible for an income tax deduction. You can donate appreciated stock to a donor advised fund (as described above) or directly to the charity if they accept donations of this kind. It is important to check with the charity first.

Gifting to Family Members or Friends

As the holidays approach, it is important to think about the gifts you plan to give to family members and friends. It may seem obvious to write a check or throw cash in an envelope, but there are things to consider when wanting to make monetary gifts to family members or friends.

Family Gifting Limits

Be thinking about your estate tax exemption and the annual gifting limit. he current estate tax exemption is $11.58 million per person and is set to sunset at the end of 2025. The current annual gift exclusion amount is $15,000 per person, per beneficiary. With our new president there may come changes to the estate tax exemption in the coming years. It is important to evaluate with your estate attorney whether you should make large gifts in 2020 to take advantage of the high exemption this year. It is equally important to work with your CFP® professional to ensure you can afford to make any substantial gifts.

Which Assets to Consider When Gifting

Gifts do not have to be cash. Look at your assets and to whom you plan to gift to and determine with a CFP® professional, the most optimal assets to give away. This could include investments and real estate.

Gifting for College Education

For children or grandchildren, consider gifting to 529 plans. Consider a service like www.ugift529.com. This allows you to make a gift that will hopefully grow and provide a tax-free asset to pay for qualified education expenses in the future.

Resources for Gifting

Giving season in combination with the holiday season can be a wonderful time of year. As you evaluate all your options, it is important to always make sure that your giving has been budgeted for properly and factored into your overall financial plan. Check out letsmakeaplan.org for more great financial planning tips, and to find a CFP® professional to help you during the giving season!