On Friday, March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion economic stimulus package providing immediate relief for nonprofits, was signed into law. For the first time ever, Congress has passed this type of giving incentive in response to disaster or national emergency. The incentive acknowledges that SHSMO and other nonprofits are doing important work worthy of support.
How this Can Impact You
If you no longer itemize, there is a new deduction available: Up to $300 per taxpayer ($600 for a married couple) in annual charitable contributions. This is available only to people who take the standard deduction. It is an “above the line” adjustment to income that will reduce a donor’s adjusted gross income (AGI), and thereby reduce taxable income. To qualify, you would have to give a donation to a qualified charity. If you have already made your donation since January 1, that contribution counts toward the $300 cap. A donation to a donor advised fund (DAF) does not qualify for this new deduction.
If you itemize, new charitable deduction limits: Individuals and corporations that itemize can deduct much greater amounts of their contributions. Individuals can elect to deduct donations up to 100% of their 2020 AGI (up from 60% previously). Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%. The new deduction is for gifts that go to a public charity, such as SHSMO. The old deduction rules apply to gifts to private foundations. The higher deduction does not apply to donations directly to a DAF. These new limits do not apply to gifts of appreciated stock.
If your assets are substantial enough that you can give more than your income this year, you won’t lose the deduction for the excess amount. You can use it next year, as has always been the case.
Required minimum distributions (RMDs) waived in 2020 for most donors: RMD for individuals over age 70 ½ are suspended until 2021. This includes distributions from defined benefit pension plans and 457 plans. The RMD is an attractive way for donors to make a significant charitable gift directly from their IRA to a charity through a qualified charitable contribution (QCD) while avoiding taxable income. The suspension of the RMD may dampen somewhat the incentive for a donor who makes a gift from their IRA to count toward that minimum. However, the tax benefit of the QCD remains.
The takeaway - donors directing a QCD to charity this year (up to $100,000 per individual) will still reduce their taxable IRA balance. This allows all taxpayers, itemizers and non-itemizers alike, to direct gifts from their IRA to charities in a tax-efficient manner.
This information is not intended as legal or tax advice. For such advice, please consult an attorney or tax adviser. Figures cited in any examples are for illustrative purposes only. References to tax rates include federal taxes only and are subject to change. State law may further impact your individual results.