Year-end charitable giving has the potential to be a life-saving donation to nonprofit organizations as individuals, businesses and nonprofit organizations are wrapping up the most challenging year in our recent history (which seems like an understatement). For those individuals who are charitably-inclined, who want to give back, who wish to do their part to ensure no one is left behind, this may be an opportune time to make a charitable contribution.
Earlier this year, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion economic stimulus package legislated to further incentivize charitable giving by providing increased tax incentives for charitable giving for both individuals and corporations.
Do you Itemize Deductions?
Individuals who itemize deductions can now benefit from the increase in the limit historically placed on adjusted gross income (AGI) for cash contributions. For cash contributions made in 2020, you can elect to deduct up to 100 percent of your AGI (increased from 60 percent).
The CARES Act provides for a new charitable deduction for those individuals who do not itemize. You may now claim an “above-the-line” deduction for charitable gifts made in cash up to $300 as long as you are not itemizing your deductions on your 2020 income tax return.
Interested in Corporate Giving?
The AGI limit for cash contributions was also increased for corporate donors. Corporations can now deduct up to 25 percent of their taxable income (increased from 10 percent).
It is important to note that the above tax incentives only apply to cash contributions to public charities and do not apply to contributions to supporting organizations or public charities that sponsor donor-advised funds. That being said, because no changes were made to existing deductions for contributions into a donor-advised fund, you are still able to deduct cash contributions to a donor-advised fund up to 60 percent of AGI and appreciated property contributions up to 30 percent of AGI.
Carryover of Excess Contributions
If your 2020 donations exceed your AGI deduction limit, you may carry forward excess deductions for up to five tax years.
Selected Distributions from Eligible Retirement Plans and IRAs
The Cares Act eliminated the $100,000 annual limitation historically imposed on 2020 distributions from eligible retirement plans and IRA accounts. Therefore, if you are charitably inclined, you may be able to take a significant distribution from your eligible retirement plan or IRA during 2020, donate it to a charity, and claim a deduction for the full amount of the distribution.
- If you are under age 591/2, you should be able to withdraw up to $100,000 in aggregate from specified qualified retirement plans and IRAs during 2020 without a 10 percent early withdrawal penalty, provided you meet the eligibility requirements.
- The 20 percent mandatory federal withholding tax is waived for corona-virus related distributions (CRDs).
- The requirement to take required minimum distributions (RMDs) for 2020 has been waived.
Tax and Legal Advice Disclaimer
This material has been prepared for information purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your tax, legal and accounting advisors before engaging in any transaction.