Personal Wealth Considerations


With the COVID-related tax filing deadline extensions this year, it seems we’ve barely closed the books on 2019, but here we are, and the fourth quarter of 2020 is upon us.  It is that time of year, as the holidays approach, that we think about how gifting, both charitable and otherwise, can be incorporated into strategic year-end tax planning. Charitable giving may be leveraged by utilizing income tax deductions, and estate tax planning may be enhanced by utilizing the annual gifting exclusion. Deciding what type of assets to gift (cash vs. noncash/securities) should involve a careful consideration of both tax and estate planning goals, paying careful attention to cost basis impact with regard to highly appreciated assets.

Income Tax Deduction for Charitable Gifts

In response to the COVID-19 pandemic, Congress included a provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act allowing those who do not itemize to take up to $300 in cash donations to qualified charities as an “above-the-line” deduction.  If you itemize deductions on your income tax return, you can generally deduct your gifts to qualified 501(c)(3) charities. These include qualifying public charities, private foundations, religious organizations, and other nonprofit entities.

You would typically choose to itemize if your total qualifying deductions exceed the available standard deduction.

2019 Standard Deductions (IRS)

Filing Status                             Amount

Single                                      $12,200

Married filing jointly               $24,400

Head of household                  $18,650

Typically the amount of your deduction for gifts to qualified charities is limited to certain percentages of your adjusted gross income (AGI), typically 60% of AGI for cash gifts, 50% of AGI for certain noncash gifts, and 30% of AGI for long-term (held for more than one year) appreciated assets including stocks and property. Due to COVID-related tax relief, qualifying cash gifts made in 2020 may be deducted in an amount up to 100% of AGI. Disallowed charitable deductions (in excess of AGI) may generally be carried over and deducted over the next five years, subject to the income percentage limits in those years. You will want to be sure to retain proper documentation to substantiate the valuation of any noncash assets gifted charitably.

Gifting Appreciated Property

Charitable gifting of appreciated assets is a particularly valuable tool, as it enables the donor to realize the full market value of the gift without having to realize and pay tax on the capital gains. For this reason it can be more advantageous to gift appreciated assets charitably, as non-qualifying recipients of appreciated assets will receive a carryover basis for gifts made during life, and will then have to realize and pay capital gains tax upon their sale of the assets.

Gifting from an IRA or QRP

In normal years, you can use a Qualified Charitable Distribution from a traditional or inherited IRA to meet all or part of your annual required minimum distribution (RMD), which would otherwise be taxed as ordinary income.  The Qualified Charitable Distribution (QCD) is a nontaxable distribution (not included in AGI) made directly by the Trustee of your IRA (other than a SEP or SIMPLE IRA) to an organization eligible to receive tax deductible contributions, in an amount up to $100,000, as long as you are 70 ½ or older. This allows a tax break for a charitable contribution even if you are using the standard deduction.

For 2020, as part of the CARES Act, individuals who would normally have an RMD from a qualified defined contribution plan or IRA can elect not to take it. So, while RMDs are waived for 2020, QCDs can still be an attractive gifting vehicle to use IRA assets in place of after-tax assets if you are making the gift anyway. Because of the 2020 COVID-related tax relief allowing individuals to deduct qualified charitable cash contributions of up to 100% of their AGI, there is an opportunity for those itemizing deductions to make charitable cash gifts with non-IRA retirement assets that are not eligible for the QCD. All said, 2020 is an important year to think about charitable gifting, particularly with regard to qualified retirement assets.


It is always wise to look at your marginal tax rate and how that may change from one year to the next when timing your charitable giving. The higher your marginal rate, the more valuable the deduction. Thus, whether you think your marginal tax rate is going up or down from one year to the next will help you decide if that gift should be made before December 31st of the current tax year or wait until after January 1st of the following year. It is also important to remember that for a gift to be included in the current tax year, the gift must be completed by December 31st. Thus, a check must have cleared, title transferred, etc. or the gift is not complete and will fall into the following tax year.

Annual Exclusion Gifting

Under the federal unified estate and gift tax (IRS 2020 limits), every individual can make an annual gift of up to $15,000 to any single donee (recipient) with no estate or gift tax consequence or filing requirement. Thus, a couple trying to reduce a taxable estate and pass it to their children could together gift $30,000 to every child and grandchild under this annual gifting exclusion. This can be a useful planning tool for people facing taxable estates. In 2020, taxable estates in excess of $11,580,000 ($23,160,000 for married couples) will pay up to a 40% estate and gift tax on amounts (not given to qualifying charities) in excess of those limits.

It may be most beneficial to gift cash for annual exclusion gifting rather than an appreciated asset, because a noncash gift made during the donor’s life is transferred with a carryover basis (the basis received by the donee is the same as the donor’s). As mentioned above, this means that the donee would have to realize and pay any applicable capital gains tax upon sale of the asset. Appreciated assets that are included in the donor’s gross estate and passed at death will typically receive a step-up in basis, so that capital gain will never by realized. The donee in that scenario receives the asset with a basis equal to the market value at the date of death. While it still may make sense to gift appreciated assets during life, as a part of larger estate tax planning strategies, it is always important to consider basis issues when gifting. 


The tax information provided herein is general and educational in nature, and should not be construed as legal or tax advice. First Business Bank Private Wealth does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of the information provided. As a result, First Business Bank Private Wealth cannot guarantee that such information is accurate, complete, or timely. Tax laws and regulations are complex and subject to change, and changes in them may have a material impact on pre- and/or after-tax results. First Business Bank Private Wealth makes no warranties with regard to such information or results obtained by its use. First Business Bank Private Wealth disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.