On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security (CARES) Act became law. The Act provided $2 trillion in economic stimulus for taxpayers and nonprofits. To mitigate the negative impact the pandemic could have on charitable giving, provisions in the law encourage individuals to maintain or increase their giving to charitable organizations by offering enhanced tax benefits.
Giving Incentives in the CARES ACT
- For the 2020 tax year, donors may deduct cash gifts to public charities up to 100% of adjusted gross income (AGI). The previous limit was 60%. Gifts to donor advised funds (DAFs) and supporting organizations (SO) do not qualify. The limitation on deductibility of gifts of appreciated stock remains at 30% of AGI. As is the case currently, if a person cannot use all of the deductions from charitable gifts made in a year, they can carry forward any unused amount for an additional five years, if needed.
- The law allows an above-the-line income tax charitable deduction up to $300 even if you don’t itemize your 2020 income tax return. The break is available to people who claim the standard deduction, which is $12,400 for singles or $24,800 for married-filing jointly in 2020. With the higher standard deduction, ninety percent of taxpayers do not itemize. This provision allows non-itemizers to lower their income taxes this year with their charitable gifts.
- The CARES Act impacts owners of Individual Retirement Accounts (IRAs) and most other retirement plans by providing a temporary waiver of Required Minimum Distributions (RMDs) for 2020, allowing owners age 72 and older to keep funds in their IRAs and other qualified retirement plans. Some people may choose to keep retirement funds in their tax-advantaged accounts. However, if you have reached 70 ½, you may still make direct distributions to charity from your IRA, just as before.
Things for You to Consider by Year-End
- Talk with your CPA about offsetting all or most of your taxable income in 2020 by making larger-than-normal cash gifts. Review the possibility of “bunching” your charitable gifts by accelerating gifts planned for next year into 2020.
- Take advantage of the convenience of a Qualified Charitable Distribution (QCD) from your IRA. Contact your custodian to begin the process of making a gift from your IRA. Even though required minimum distributions (RMD) have been waived for 2020, a QCD may still be a desirable way of giving. Although a QCD does not produce a charitable deduction, it produces the same tax savings as a charitable deduction because the distribution is not taxable. This type of gift saves taxes for both itemizers and non-itemizers alike. By making a QCD in 2020, the RMD will be lower in future years.
- Consider establishing a charitable gift annuity with a gift of cash. The charitable deduction generated by such a gift may allow you to deduct up to 100% of your AGI.
- Reap the benefits of a recovered stock market by converting your appreciated stock to a life-income gift through a charitable gift annuity or charitable remainder trust. Benefits include an immediate income tax deduction, capital gains tax savings and an income for life.
This information is not intended as tax, legal or financial advice. Consult your financial advisor for information specific to your situation.
About the Author
Since 2000, Randy has served as Director of Planned Giving for Southwestern Medical Foundation and UT Southwestern Medical Center. He works with donors to suggest bequest language to share with attorneys, establish charitable gift annuities and charitable remainder trusts, utilize beneficiary designations for retirement plan accounts and explore gifts of other non-cash assets like real estate and life insurance. After receiving a Masters of Divinity degree from Vanderbilt University, Randy began a career in development, working in higher education, the arts and in academic medicine. He received the Chartered Advisor in Philanthropy designation (CAP) through the American College of Financial Services.
To contact Randy Daugherty, please call (214) 648-3069 or email him at randal.daugherty@utsouthwestern.edu.
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Moroney, Smith, and Bass Family Gift Furthers Brain Discovery