CARES Act Highlights*
Recent changes to the CARES Act (Coronavirus Aid, Recovery and Economic Security Act) create “once-in-a-lifetime” opportunities to help donors save substantial amounts on their taxes while benefiting nonprofits in the process. These changes ONLY apply to the 2020 calendar year, however, so there is not a great deal of time to take advantage of this.
CARES Act Highlights
Unlimited Deduction for Cash Contributions: If you itemize deductions, you can deduct the amount of charitable cash donations in 2020 up to 100% of Adjusted Gross Income (AGI). Usually, the deduction for these donations are capped at 60% of AGI. This means, for example, donors may:
Sell depreciated stock, make a cash gift and deduct up to 100% of donor’s AGI
Eliminate any taxable income tax this year by making sufficiently large cash charitable contributions.
New Above-the-Line Deduction: If you do not itemize deductions, you can deduct up to $300 (per taxpayer) of charitable cash donations as an above-the-line deduction, in addition to the standard deduction. This means your cash donation will reduce your AGI up to $300.
RMDs from Retirement Accounts Waived: The CARES Act suspended required minimum distributions (RMDs) from IRAs, 401(k)s, 403(b)s and other qualified retirement plans for 2020, so if you reached the age of 70 ½ on or before Dec. 31, 2019, you are not required to take a minimum distribution in 2020. In normal years, making a Qualified Charitable Donation (QCD) can be the most tax-efficient way to satisfy all or part of your RMD. If you are over age 70 ½, you can transfer money directly from your retirement account to a charity and satisfy your RMD without incurring income tax on the distribution. Although making a QCD this year will not satisfy your RMD, it will reduce the value of your account, thereby reducing the amount of future RMDs.
Also, if you are between ages 59 ½ and 70 ½, the unlimited deduction for charitable cash contributions allows you to make a charitable contribution from your retirement plan that has benefits similar to a QCD. You could withdraw cash from your account, use the cash to make a charitable contribution, and the charitable deduction may completely offset the taxes you would have incurred from the withdrawal.
DONOR ACTIONS TO TAKE IN 2020
These new opportunities under the CARES Act and other tax-efficient ways to make charitable gifts are worth considering as we near the end of 2020:
Gifts of appreciated stock or property (taxpayer takes a deduction for full market value; since charity then sells stock or property, no capital gains to report)
QCDs from donor’s individual IRA up to $100,000 gifted directly to charity avoids income tax on the distribution
Cash on hand or from sale of assets allows for 100% deduction of AGI in 2020
Donor advised funds – make distributions now when needed most
Pay multi-year pledges all in 2020 to take advantage of tax benefits
Beneficiary designations for retirement plans to charity (for distribution at death) is an income tax efficient way to fulfill charitable bequests in donor’s estate plans
Seldom has there been such a tremendous opportunity for individuals to benefit nonprofit organizations while saving substantial amounts on their taxes. If you are interested, we strongly suggest you contact your financial advisor or tax attorney to see how these one-time opportunities can be a great way for you to help your favorite nonprofits during an especially challenging time. While Austin Shakespeare is not in the business of being an expert on tax law, we will do what we can to help you achieve tax benefits while helping to provide education, culture and artistic programming to our community in the process.
Please note that we are not providing tax advice. All situations vary, so please be sure to consult with your tax advisor to determine whether a charitable gift is right for you.
*This text was used with permision from Austin Shakespeare