The COVID-19 pandemic has created a historic need for support for millions of struggling families and communities across the country. Globally, people continue to suffer from hurricanes, floods, fires and regional disasters like the devastating Beirut explosion. To encourage charitable giving, the Coronavirus Aid, Relief and Economic Security (CARES) Act has increased tax incentives for cash gifts in the 2020 tax year.
Individuals who itemize can now deduct cash contributions of up to 100% of their adjusted gross income (AGI), increased from 60% in 2019. Individual taxpayers and married couples filing jointly but not itemizing can take an “above the line” deduction for cash contributions up to $300. The limit for corporate cash contributions has been raised to 25% of taxable income, up from 10% in 2019. The donation must be in cash and go directly to the charity to qualify.
The CARES Act legislation adds to a number of existing giving strategies that extend your tax benefits. Creating a donor-advised fund allows you to take an immediate tax deduction on assets set aside to provide ongoing support to a public charity. Typically, donor-advised funds are started with gifts of cash, securities or other assets which appreciate within the fund tax-free. Contributors are eligible for a tax deduction of the appreciated value of the asset, up to 30% of their adjusted gross income.
Taxpayers with IRAs who meet age and status requirements have additional options for giving. If you are age 70 ½ or over, you can make qualified charitable distributions (QCDs) from your IRA of up to $100,000 that aren’t subject to AGI limitations. If you have started taking required minimum distributions (RMDs) from your IRA you can direct your trustee to make a direct contribution to a qualified charity which will dollar-for-dollar lower your income for the tax year. Doing so could result in lowering the tax on social security income, Medicare premiums and your AGI for unfavorable phase-outs.
Finally, before making a donation to a charity you are not familiar with, it’s wise to ask questions about the organization. Charity Navigator, CharityWatch, Guidestar and BBB Wise Giving Alliance can help you find information before you donate. Be aware that donations you make to individuals through social media or a crowdfunding site while for a worthy cause are not tax deductible, according to IRS regulations. For a list of organizations eligible to receive tax-deductible charitable contributions, visit the IRS website.
If you have questions about charitable giving for 2020 or planning for the future, our tax advisors can help regarding your particular situation. We are always happy to hear from you.