2020 CARES Act Donor Advantages
On March 27, the President signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act to help combat the far-reaching impacts of COVID-19. The bill provides increased tax incentives for charitable giving for both individuals and corporations, signifying an intent to stimulate philanthropy throughout America.
For the 2020 tax year only, you may deduct gifts of cash to most public charities to offset as much as 100% of your income!*
Ordinarily, the income tax charitable deduction for cash gifts is limited to 60% of your income. This 100% limit allows especially generous donors to reduce their 2020 federal income tax to zero. If you are even more generous, you can carry forward unused cash contribution deductions for up to five years. Contributions to donor advised funds or supporting organizations are not eligible for this deduction. Your ability to deduct up to 100% of your income with cash gifts is reduced by your gifts of appreciated assets, such as publicly traded securities and real estate, for example. That means your charitable deductions in 2020 cannot exceed 100% of your income, but you may be able to carry unused charitable deductions forward to future years. It may not be the tax-wise choice to deduct up to 100% of your income. Because federal income tax rates are progressive, it is not a given that it will be to your advantage to deduct 100% of your cash contributions in 2020. Check with your financial or other advisors to determine whether the 100% deduction makes sense for your specific circumstances.
If you do not itemize your deductions in 2020, you may reduce your taxable income by $300 for your charitable contributions.
Contributions of cash to public charities can be made using an “above the line” adjustment to reduce your taxable income.
Most required minimum distributions from retirement plans have been eliminated for 2020. Check with your financial advisor to see how this temporary rule will apply to you. Minimum distributions that have already started are still required from some defined benefit pension plans, but some required minimum distributions that would have started in 2020 may not have to start until 2021.
Qualified charitable distributions (QCD) are still a great way to make contributions if you are 70½ or older. A QCD or IRA charitable rollover allows you to make a tax-free gift of up to $100,000 from your IRA and remains a great way to make tax advantageous contributions, especially if you don’t itemize your deductions.
*Please note: this material is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual's legal, tax, and financial situation is different, you are advised to consult with your own attorney, CPA, and/or other advisor regarding your specific situation. We believe that the information presented in this material is accurate as of November 1, 2020. However, we will assume no responsibility for any errors or omissions and specifically disclaim any liability resulting from the use or application of the information contained here.