I write this article on the somber weekend of the Memorial Day Holiday. With the significance of honoring the fallen, it is important to remember how we can help these “Gold Star Families”, a term coined during World War I.
During this weekend, I was reminded of the families of the fallen due to my husband. My husband, a “former” Marine (although once a Marine, always a Marine) and as I volunteer for the Tragedy Assistance Program for Survivors (“TAPS”). TAPS is a program that assists children and adults in coping with losing their family members and on Memorial Weekend they hold their annual TAPS Camp in Washington, DC. Before contributing to a Gold Star Family, there are important tax considerations to be aware of.
The Federal Government assists Gold Star Families in various ways. First, the Department of Defense makes a lump-sum payment to the identified individuals by the service member prior to their death, in the amount of $100,000. This is tax exempt.
Second, retired service members and servicemembers who die while in active service may elect to provide their spouses and/or children with up to 55% of their pension. The Department of Defense distributes SBP payments as a taxable annuity for the lifetime of a surviving spouse and up to age 18 or 22 for most surviving children. Children must file a separate return to report their income above $2,200. Between 2018 and 2025, the calculation of the kiddie tax is done by taking a child’s unearned income according to the tax rates that apply to estates and trusts. Unfortunately, this large tax has cut into the amounts families receive, sometimes affecting the sufficiency of Gold Star Families to support themselves. As a result, there are a plethora of charities that assist Gold Star Families.
For those that want to donate this weekend, you must be mindful of several things. First, gifts directly to the individuals of the loved ones are not tax-deductible contributions. Second, crowdfunding websites are not tax deductible, unless it is a verified 501(c)(3). Crowdfunding websites are great in that they are easy to set up, easy to donate, and the receiver does not have to report it as income if the contributions are made because of detached, disinterested generosity, with 0 expectation of anything in return. But if the crowdfunding site is not a verified 501(c)(3), you cannot deduct any donations.
Generally, you can only deduct charitable contributions if you itemize deductions on an attached Schedule A (Itemized Deductions) to your Form 1040 (U.S. Individual Income Tax Return). You must maintain a record of the contribution, whether it is cash, check, or any other monetary gift.
Before making a contribution, look into the best option for donations. Long-term appreciated assets, such as stocks or bonds, are a great alternative to donating cash. When you donate long-term appreciated assets, you eliminate paying the capital gains tax on those assets. Additionally, the tax deduction is for the current fair market value, not the value of when you purchased the asset. This is a much more beneficial way to donate, rather than selling the asset, paying the capital gains tax, then donating the proceeds.
In the chance that a gold star family expects to receive private donations, I strongly encourage them to start a 501(c)(3). This will incentivize private donations as well as give donors a benefit for their positive donation.