Charitable Giving in Light of the CARES Act

The CARES Act made some significant changes to tax strategies for charitable contributions in 2020 that all taxpayers should be aware of. With everything that’s happening, these CARES Act provisions provide a way to benefit worthy organizations in need of assistance while meeting your own giving and financial planning goals.

Charitable donors sometimes have to juggle their priorities between providing support of charitable organizations, proper estate planning, and achieving the best tax result. Below are some ideas that take into consideration various situations that our friends and clients may experience. For the best advice for your personal situation, you’ll want to visit with your financial planner or tax professional when making your charitable giving plans this year.

First off, anyone, regardless of whether or not they itemize deductions, can make a tax-deductible charitable contribution of $300 this year. This is a great opportunity to help out your community while reducing your taxable income.

Next, taxpayers who do itemize can deduct cash contributions to public charities, up to 100% of adjusted gross income, an increase from the normal 60% deduction limit. Why did we bold those words? Because they’re critical elements of this provision – donations must be made in cash – donations of appreciated stock and other assets don’t receive this 100% treatment and are still limited to 30% of your adjusted gross income; and contributions must be made directly to a public charity, not to a supporting organization or to a donor advised fund.

Here are some other ideas:

• If you’re thinking about converting a traditional IRA to a Roth IRA, this might be the year to do it, with the idea that your charitable contribution deduction could cover the taxes from your Roth conversion.
• If you’re over 59¹⁄₂ and planning to make a charitable contribution, you may take a distribution from your IRA with a corresponding cash contribution to charity, and offset your IRA income dollar-for-dollar, assuming you itemize deductions. This gives you a result that is similar to a “qualified charitable distribution” (QCD) which is normally only available to taxpayers over 70¹⁄₂ and only up to $100,000, so this opens up a strategy to more people.
• If you’re over age 72, you probably already know that required minimum distributions have been eliminated this year. That allows you some flexibility when considering the source of your charitable contributions. If you are considering making charitable contributions of appreciated assets, you may prefer to do so from taxable accounts so you don’t have to pay taxes on the gain.
• As with current law, any cash gifts in excess of the AGI deduction limit can be carried forward for up to five years. It may be more tax-advantageous for you to make a large contribution in 2020 but not make the 100% of AGI election and carry forward deductible charitable contributions to future years. Each individual’s situation will be different.

As of this writing, these provisions expire at the end of 2020, so now is the time to visit with a professional to determine what works for your situation.