As we approach the end of 2020, it’s worth asking everyone if they are aware of the following temporary incentives for giving? It’s possible some people may not have heard! In March 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted. The bill provides increased tax incentives for charitable giving in hopes of stimulating philanthropy throughout America. The window for taking advantage of these changes closes on December 31, 2020.
Are you itemizing deductions? (you plan on using Schedule A as part of your Form 1040)
For those donors who itemize their deductions, and therefore directly write off gifts to charity, the deduction cap has been raised to 100% of adjusted gross income (earlier cap was 60%). For example, if John Taxpayer has an AGI of $175,000, he would normally be able deduct up to $105,000 for gifts to charity. With the temporary changes in the CARES Act, John could now deduct up to his full AGI of $175,000 if he gives that much to charity in 2020.
Not itemizing? (you do not plan on using Schedule A as part of your Form 1040)
For the over 9 out of 10 people who no longer itemize their charitable giving, the CARES Act will allow these individual taxpayers to deduct donations to charity of up to $300 on their 2020 federal tax return, even though they take the standard deduction. Married-filing-jointly taxpayers will get an above-the-line deduction of up to $300.
What about IRA Qualified Charitable Distributions (QCD)?
The CARES Act did not change the rules around the QCD, which allows individuals over 70½ years old to donate up to $100,000 in IRA assets directly to charity annually, without taking the distribution into taxable income. However, remember that under the CARES Act an individual can elect to deduct 100% of their AGI for cash charitable contributions. This effectively affords individuals over 59½ years old the benefits similar to a QCD; that is, they can take a cash distribution from their IRA, contribute the cash to charity, and may completely offset the taxes attributable to the distribution by taking a charitable deduction in an amount up to 100% of their AGI for the tax year. If you’re planning a large donation in 2020, this may be a smart strategy if you are between the ages of 59½ and 70½ and are not dependent on existing retirement funds.
Now is a good time of the year for congregations and non-profits to encourage members and stakeholders to consider these opportunities. It’s a Win-Win for everyone! Encourage your supporters to contact their financial advisor to further explore the possibility of a gift from their IRA, benefitting both donor and recipient!
Fred Stoltz, Sr. Program Director
The James Company