Perhaps more than most years your favorite charity needs your support. While there is a tax reduction potential in charitable donations, it is important that the desire to give is the primary motivating factor. The Coronavirus relief law, known as the CARES Act, was passed earlier this summer and makes some important changes to the charitable giving rules that apply only to this year. If you are charitably inclined and in a position to give, please consider these changes and contact us if you have any questions.
Delay Charitable Giving From IRAs
If you are over the age of 70.5, one of the most effective ways to give to charity is directly from your IRA, a process known as a Qualified Charitable Donation (QCD). If you are subject to Required Minimum Distributions (RMD), the QCD replaces part or all of your RMD. The QCD cannot be taken as a charitable deduction, but the amount that goes to charity also does not count as taxable income. Currently, the majority of taxpayers simply use the standard deduction because they do not have enough deductions to itemize. As a result, they are not receiving any tax benefit for their charitable donations.
In order to simplify the process of making charitable donations, many of our clients have a checkbook for their IRA. This allows you to write checks to the charity of your choice directly from your IRA.
As we approach the end of 2020, we are advising our clients who generally make substantial year-end contributions using these IRA checks to hold off from doing so until the new year. The reason for this is that RMDs were waived this year as part of the CARES Act. Since one of the benefits of the QCD is that it replaces part or all of your RMD, this benefit is moot in 2020.
Give Up To $300 Cash If You Are Claiming The Standard Deduction
The Tax Cuts and Jobs Act of 2017 (TCJA) increased the Standard Deduction, and eliminated or limited a number of common deductions such as State and Local Taxes (limited to $10,000 per household), and mortgage interest (limited to the first $750,000 of mortgage debt).
An unintended consequence of this was reducing or eliminating the tax benefit of giving to charity. Generally, in order to see any tax benefit for your charitable giving, you have to itemize your deductions. However, due to the changes made by the TCJA, the number of taxpayers who take the standard deduction increased from approximately 70% to 90%.
In an attempt to help charities at a time when charitable giving is down from previous years, another concession was added to the CARES Act which allows you to take a deduction of up to $300 “above the line” for any cash (check, credit card) charitable contribution that you make if you claim the Standard Deduction.
This means that if you do not itemize your deductions, and you are considering a charitable donation, you can give up to $300 in “cash” like donations and get the full deduction.= What does not count is the gifting of personal items such and clothes and furniture or highly appreciated assets. Those donations would need to be part of your itemized deductions.
Give Up To 100% Of Your AGI
If you are among the 10% of taxpayers who itemize deductions, and happen to be highly charitably inclined this year, the charitable deduction limit has been increased to 100% of your Adjusted Gross Income for cash donations to certain types of charities.
Some of the new rules are fairly technical. If you are interested in making a year-end charitable donation and have any questions about the new rules, please contact our office.