Charitable Giving Under the CARES Act
As you are probably aware the government recently passed the CARES Act to help combat the economic downfall as a result of COVID-19. Well, included in the bill are some new tax incentives for charitable donations. Whether you give to regularly or would like to start, this blog will inform you of the opportunities made possible by the CARES Act.
Above the Line Deductions
The Tax Cuts and Jobs Act of 2017 drastically reduced the number of individuals who itemized their deductions. This was because of the standard deduction being doubled to $12,400 for individuals and $24,800 for joint filers. Of course, when use the standard deduction then you are not able to claim charitable donations.
One of the changes for 2020 is the allowance of a $300 above the line deduction for anyone who claims the standard deduction. Keep in mind that the donation must be in cash and documented.
Relaxed Limitations on Deductions for Individuals
For those who itemize their deductions there is typically a limit to the amount of donations you can claim. Those limits are 60% of your adjusted gross income (AGI) for cash and 50% of your AGI for appreciated assets.
The CARES Act has raised that limit to 100% of your AGI for 2020. Also, any amount passed 100% will be allowed to carry forward for the next five years. Private Foundations and Donor Advised funds do not qualify for the 100% limit.
Cash Donations Only
The IRS has yet to be clear about this, but the assumption is that the 100% limit is for cash donations. So, we recommend being safe and making your gifts in cash. If you usually give stock it may make sense to sell it for a loss to offset any gains and then gift the proceeds as cash.
Gifting your RMD under the CARES Act
We have written before about the strategy of gifting your required minimum distribution (RMD) here. If you are elidigble for and RMD in 2020 and are considering gifting to charity, then there may be a unique strategy available to you this year
Frist, you can convert the amount of your RMD into a Roth IRA. Then, you can gift cash to a charity offsetting the taxes you would owe on the conversion.
Just because you are elidigble for a 100% deduction does not mean it is right for you. Since everyone’s situation is different, we recommend you speak to us and your tax preparer before acting.