Attention All Cadets! Fortifying Your Rockbound Highland Home

3 Ways to leave a financial legacy to West Point, eliminate your tax burden and receive income for a lifetime

Anyone who is a graduate of the United States Military Academy regards their four years at West Point as a pinnacle event in their life. The selection process is just the beginning of a long four year struggle. For some cadets, the struggle is with the Dean of Academics. For other cadets, the challenge is disciplinary, and marching and becoming a Century Man. Other cadets mastered the academics but struggled with the physical requirements. In the final analysis, every cadet faced at least one challenge that molded them into military leaders to lead and defend the nation. Some of the Country’s greatest leaders faced and met those challenges.

The Country once again faces a new epic challenge, a challenge that is partly invisible, but has shaken the Country to its core. This challenge and its economic consequences may last for an indefinite period. The financial ramifications of this crisis may matter more the to the mission of the United States Military Academy than past challenges.

Unlike Ivy League schools which enjoy large endowments built over decades, the service academies are relatively new to the planned giving game. In the past, service academies could always rely on generous allocations from the defense budget. In more recent times, all of the cadet extra-curricular activities need to be funded by the West Point Association of Graduates (AOG) Endowment.

The AOG usually is not afforded the opportunity to sit down with you and your accountant when you are contemplating the sale of your business or appreciated company stock that you have held for a long time. The COVID-19 pandemic has created a once-in-a-lifetime financial and tax planning opportunity to be able to leave a legacy to West Point. In 2020 you have the ability to deduct 100 percent of your income.

Taxpayers are usually restricted in their charitable deductions to a percentage of their adjusted gross income (AGI) depending upon the nature of the gift. This report (as promised) is going to outline three strategies to pay zero dollars (you read correctly) in 2020 while leaving a financial legacy for the Academy. For some of you (including me!), it is a chance to erase your prior legacy as a Century Man or the Class Goat. Just saying!

The Lay of the Land in 2020

In response to the Corona Virus pandemic, The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was enacted on March 27, 2020. In order to encourage charitable contributions in 2020 (for any charitable purpose, not just contributions to charities related to the COVID-19 crisis,) the CARES Act increased the maximum 60% of AGI charitable contribution limit to a 100% of AGI limit for gifts of cash for 2020. The 100% limit also includes gifts of property directly to donated to the AOG in 2020.

This means that donors can get a charitable contribution deduction for the full amount of their Adjusted Gross Income (AGI). You read that correctly, 100 percent of your income in 2020. Under normal circumstances, tax law would limit charitable deductions to a public charity to 60 percent of AGI. The deduction limit for gifts of appreciated long-term capital gains property. The deduction limit for a donation that is a combination cash and property is 5o percent of AGI.

Tax Orienteering – Traversing the Landscape to Maximize Deductions

From my time on active duty, NCOs always said that the most dangerous thing was a second lieutenant with a map. Navigating through the Internal Revenue Code is equally as dangerous. The following examples outlined provide some examples of how to exploit the once-in -lifetime opportunity of being able to make a charitable contribution to the AOG equal to 100 percent of your AGI in 2020.

Example 1

Johnny Gung Ho, USMA Class of 1982, would like to make a substantial gift to the Academy. His AGI for 2020 is $250,000. He would like to make a gift to the AOG Endowment equal to his AGI in 2020. He has additional financial resources outside of his AGI to pay his living expenses in 2020.

Solution 1

Johnny Gung Ho makes a gift of a $250,000 four-plex in Killeen, TX directly to the AOG in 2020. Normally, this type of gift would be limited to 30 percent of AGI, as long term capital gain property. The CARES Act allows a deduction of cash or property up to 100 percent of AGI in 2020 providing the gift is made directly to a public charity. Taxable gifts to a public charity may be deducted up to 100 percent of AGI provided that the charitable gift is made directly to a public charity.