How Gifts, Estate Tax Exemptions, and Charitable Donations Do More Than Benefit Your Loved Ones: Tips for Minimizing Your Tax Burden by Giving Generously in 2020

As the winter holiday season ramps up, non-profits and charities are attempting to meet their year-end fundraising goals, but as the coronavirus crisis continues, these organizations will likely need more resources than they have in previous years. If you are an investor who is in a fortunate enough position to give, now may be a good time to consider ways you can financially assist charities (or family members).

There are several upsides to charitable and intra-family gift-giving, not the least of which will help you increase your tax savings. We offer some tips for minimizing your 2020 tax burden through estate planning, gifts to your family, or significant donations to the charity of your choice.

Gift Incentives Under the CARES Act Can Help Investors Offset Tax Burdens

This year is an especially good one to give generously, because investors may be able to offset their entire 2020 tax bill based on rules under the CARES Act, which provides several incentives for doing so. There are no income limits on tax deductions for cash gifts to eligible public charities, and, for investors who make contributions to donor-advised funds, deductions can be made for up to 60 percent of adjusted gross income. If you have capital gains taxes to pay from the sale of securities or real estate, or you have income taxes to pay on a Roth IRA conversion, a generous gift to a charity or non-profit can help you offset much, or all, of that burden.

Qualified Charitable Distributions

If you are unsure about what is considered a qualified or eligible charity, think about organizations that are granted tax-exempt, or 501(c)(3) status by the IRS. Non-profit organizations and charities like the United Way, the Salvation Army, or Goodwill would fall under this category as would mosques, churches, synagogues and other religious organizations. Public parks and recreation facilities are also eligible.

The CARES Act waived the Required Minimum Distribution (RMD) requirement for 2020, but if you are 70½ or older and would still like to take the distribution to make a Qualified Charitable Distribution (QCD), you should do so. QCDs can be counted toward satisfying your RMD, and when you give the amount a to qualified charity instead of using it, that amount is excluded from your taxable income. As long as you make the payment directly from your IRA account to the designated charity or organization, you can exclude up to $100,000 from your taxable income.

Mike Gavett, a B. Riley Wealth Management financial advisor in Dallas, says he likes to discuss QCDs with clients and encourages them to make charitable gifts using their RMDs. "The charity gets the full value of the gift, including where the client would have paid taxes. The client does not have a tax bill for the portion gifted, which is, of course, a good way to offset capital gains or income taxes."

Donor Advised Funds

Some investors choose to give to organizations through donor advised funds (DAFs), which are analogous to investment accounts, except they are used for charities. These types of funds are normally part of public charities, which are 501 (c)(3) organizations that actively engage in fundraising. Schools, universities and religious organizations would fall under this category as opposed to private foundations, which, while 501(c)(3)s, are not considered public because they are usually supported through one large source, like a gift bequeathed by a family.

Giving to donor advised funds allows investors to make donations from large non-cash assets like stocks, cryptocurrency or other sources, and take an immediate tax deduction the year the gift is made. The difference between simply giving cash to a public charity in a lump sum, as opposed to placing money in a donor advised fund, is that while a gift placed in a DAF comes out of your tax bill immediately, you have several years to determine your allocation strategy as your account accrues, creating an opportunity to grow the account before donating to the charity (or charities) of your choosing.

Gifts to Family Members and the Estate Tax Exemption

Investors have multiple options for gifts to family members, and for high net worth individuals, the Tax Cuts and Jobs Act (TCJA) allows for sizable gifts to be made to spouses or children. Until the exemption expires in 2026, the lifetime gift and estate tax exemptions are set at $11.58 million. This is significant, because when estates are transferred after the death of a spouse or family member, they are normally subject to a 40 percent tax after the transfer of the first $5 million. Now, estate transfers are tax-free for an amount of up to $11.5 million, and double that amount for married couples.

The standard annual gift tax exemption remains at $15,000 per year, per individual, and married couples can use a gift-splitting election to give a total of $30,000 for the year, keeping the gifting exemption at $15,000 each.

Give the Gift of an Education

Some investors may want to give their children or grandchildren the gift of a college or private school education. One major advantage of this is that five years' worth of gifts can be made in one year by opening a 529 plan account and "superfunding" it. Normally, investors are permitted to gift $15,000 per year to a family member, but if they choose to purchase a 529 plan, they can place up to $75,000 in the account at one time, and double that amount, $150,000, they are married. As the original account holder, that investor would also own the plan, which means that if plans changed, adjustments to beneficiaries could be made, as well. If one child in a family received a scholarship or decided to forgo college entirely, the beneficiary could be changed so another child could receive the gift.

Just like 401(k) plans, 529 plans accumulate on a tax deferred basis and earnings are tax free, as long as those funds are used to pay for qualified educational expenses like tuition, room and board. Using the account for other expenses will result in a 10 percent penalty and federal income tax upon withdrawal. It's also worth noting that the Tax Cuts and Jobs Act now allows for the use of 529 plans to fund elementary through high school (K-12) tuition expenses as well.

Another consideration for 529 plans is a welcome, though unintended, consequence: removal of assets from your estate, which therefore, cannot be taxed. Since 529 account contributions are treated as completed gifts by the IRS, contributions to 529 accounts have the effect of reducing your estate by the amount gifted, which can ultimately save you up to $350,000.

Gavett adds, "From an estate planning standpoint, we advise clients on the power of 529 planning for the removal of assets from their estates, given that parents or grandparents can accelerate gifting (up to $75K per individual) in the first of a five year period. There are caveats to this, of course, but it can be an effective tool for overall reduction of one's tax burden."


Depending on your financial status, there are several creative ways to engage in charitable giving this year and into the future. If you have questions about charitable gifts, we encourage you to meet with your financial advisor or reach out to B. Riley Wealth Management.

B. Riley Wealth Management does not provide tax or legal advice. Please consult with your tax and/or legal advisors before taking any action that may have tax and/or legal consequences.