The tax perks of the Coronavirus Aid, Relief and Economic Security (CARES) Act and other pandemic-related relief mean that high-net-worth clients can combine investing and charitable giving in new ways—at least for now.

“Wealthy taxpayers should consider breaking the conventional mantra of delaying income and advancing deductions,” said Joe Roberts, senior vice president and senior wealth strategist at Rockefeller Capital Management in Philadelphia. “If income tax rates increase, this year may be the most favorable treatment for many years to come.”

Jared Feldman, CPA, partner and leader of the private client group at the New York accounting firm Anchin, recommended qualified opportunity funds [QOFs], an investment vehicle geared to helping low-income areas. “Certain taxpayers have until Dec. 31 to invest,” he said. “They can defer the tax on 2019 capital gains until 2026 as well as have that gain reduced by 10% as well as eliminating the tax on the actual investment if that investment is held for a minimum of 10 years.”

Recent reports said giving last year in the U.S. exceeded $449 billion. Giving to human services causes, health organizations and public-society benefit organizations all increased last year over 2018.

The potential now for your wealthy clients is the interplay of need, willing donors and related tax breaks, in addition to regularly tax-smart giving moves. Suggestions include transferring wealth to charitable trusts or other trusts; gifting appreciated capital assets; utilizing the annual gift exclusions up to $15,000 per recipient; gifts to 529 plans; and gifting assets that are currently at lower values.

Donors can still take a fair market value deduction for contributions of publicly traded securities and other non-cash assets held longer than 12 months and can still deduct up to 30% of AGI when contributing non-cash assets to a public charity.

Cash gifts offer a current-year tax deduction and an appreciated stock gift has the added benefit of eliminating the capital gains tax that would have had to be paid, Rey Santodomingo, managing director of investment strategy with Parametric Portfolio Associates, wrote in the firm's recent blog entry, "Maximizing Tax Benefits Through Charitable Giving."

“Under the CARES Act, you have the ability to deduct cash gifts in 2020 of up to 100% of your AGI,” said Craig Richards, director of tax services at Fiduciary Trust International in New York. “Any excess cash gifts can be carried over to the next five years.”

“Certain taxpayers now qualify for a $300 above-the-line deduction on charitable contributions even if they don’t itemize,” added Kathy Buchs, CPA, director at MAI Capital Management in Cleveland. “For taxpayers who do itemize, cash contributions were previously limited to 60% of their AGI.

“It may also be a good time to consider a Roth [retirement account] conversion while values are low and potential charitable contribution deductions are very high,” she said. “With a large charitable contribution, the tax impact of a Roth conversion would be significantly lower than in a typical tax year or it could be completely eliminated.”

Even though required minimum distributions aren’t mandated for 2020 and the new age for RMDs is 72, the rules for qualified charitable distributions remain intact, Richards said. “If you’re age 70½ and an IRA owner, you can transfer tax-free up to $100,000 directly to charities without recognizing income or worrying about being eligible for a deduction,” he said.

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