The new CARES (Coronavirus Aid, Relief, and Economic Security) Act is designed to help you, businesses, and nonprofits facing economic hardship during the coronavirus pandemic.
The Law, Explained by a Charitable Planning Attorney
Here are a few key provisions of the CARES Act that may affect you and your charitable goals:
Required Minimum Distributions Suspended
The new law temporarily suspends the requirements for required minimum distributions (RMD) for the 2020 tax year. Despite the RMD suspension, remember that if you are 70½ or older, the tax benefit for making a qualified charitable distribution remains in effect. You can direct up to $100,000 per individual this year to charity and still reduce your taxable IRA balance.
Why a Gift From Your IRA Is Still a Good Idea
- Your gift will be put to use today, allowing you to see the difference your donation is making.
- You pay no income taxes on the gift. The transfer generates neither taxable income nor a tax deduction, so you benefit even if you do not itemize your deductions.
- Since the gift doesn't count as income, it can reduce your annual income level. This may help lower your Medicare premiums and decrease the amount of Social Security that is subject to tax.
New Tax Incentives
The CARES Act expands charitable giving incentives and allows taxpayers who take the standard deduction to make up to $300 in charitable contributions in outright cash to qualified charities this year. It's important to note that contributions of appreciated securities do not meet the above-the-line deduction qualification. Gifts to donor-advised funds, private foundations, or supporting organizations do not qualify for the deduction.
Higher Deduction Limits
For tax year 2020 you can claim an income deduction of up to 100% of your adjusted gross income (AGI) (the prior deduction was 60% of AGI) for cash gifts made to public charities, such as St. Christopher's School Foundation. For example: a donor who earns $200,000 would be in a 32% federal income tax bracket. If he makes cash gifts totaling at least $200,000 to a public charity, and chooses to elect the new AGI rule with no other deductions, he will pay no federal income tax in 2020, thereby saving more than $45,000. Under the current law, contributions that exceed this limit can be carried forward for five years but subject to the percentage limitations in the carryover years. Gifts of stock, or other real property items are still subject to the previous limit of cost basis or 30%.
The deduction for corporate cash gifts has also been raised from 10% to 25% of taxable income for this year.
As always, check with your tax professional for the best strategy for making charitable gifts as it pertains to your financial situation.