Honoring the Fallen and Supporting Gold Star Families

Key Highlights :

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. But if the crowdfunding site is not a verified 501(c)(3), you cannot deduct any donations.

7. 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.

     The Memorial Day weekend is a somber one, as we remember those who have served and sacrificed for our country. It is also a time to remember Gold Star Families, a term coined during World War I to refer to those who have lost a family member in service. While we can never truly repay these families for their loss, there are a few ways we can help support them financially. This article will discuss the tax considerations for Gold Star Families, as well as the various ways to donate to them.

     The Federal Government provides financial assistance to Gold Star Families in the form of a lump-sum payment of $100,000 to the individuals identified by the service member prior to their death. This payment is tax-exempt. In addition, retired service members and servicemembers who die while in active service can elect to provide their spouses and/or children with up to 55% of their pension. The Department of Defense distributes this 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 any income above $2,200.

     Unfortunately, the calculation of the kiddie tax between 2018 and 2025 is based on the tax rates that apply to estates and trusts, which can significantly reduce the amount of money Gold Star Families receive. To help offset this, there are a plethora of charities that provide assistance to Gold Star Families.

     When donating to Gold Star Families, it is important to note that gifts directly to the individuals are not tax-deductible contributions. Furthermore, donations made through crowdfunding websites are also not tax deductible unless the website is a verified 501(c)(3). If you are looking to make a tax-deductible contribution, it is best to donate long-term appreciated assets, such as stocks or bonds. This eliminates the capital gains tax on those assets, and the tax deduction is for the current fair market value, not the value of when you purchased the asset.

     If a Gold Star Family expects to receive private donations, it is recommended that they start a 501(c)(3) organization. This will incentivize private donations and give donors a benefit for their positive contribution.

     The loss of a loved one in service is heartbreaking, and we can never truly repay Gold Star Families for their sacrifice. However, by being mindful of the tax considerations and donating through the proper channels, we can support Gold Star Families and honor the fallen.

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