The ripple effect of the coronavirus continues to be felt across the United States. Food banks, religious organizations, and various other support organizations have seen a significant increase in the need for their services. In response, The Coronavirus Aid, Relief, and Economic Security (CARES) Act included significant rewards for those who give to charities in 2020.
- Individual taxpayers may deduct up to 100% of their adjusted gross income (AGI) in cash contributions to public charities. Prior to the passage of the CARES Act, the limit was 60% of AGI. The law effectively allows taxpayers to completely wipe out any tax liability for 2020. In addition, excess contributions above the taxpayer’s AGI can be carried over and claimed on tax returns for the next five years.
- It is estimated that only about 10% of taxpayers itemize deductions on their tax return. Thanks to the Tax Cuts and Jobs Act of 2017, taxpayers are required to itemize in order to claim charitable donations. That rule has been waived for 2020. Now taxpayers who do not itemize may claim a charitable income tax deduction for contributions up to $300 total. The rule applies only to cash donations, not gifts of securities or property.
- Required Minimum Distributions (RMDs) are not mandatory for 2020. However, that does not prevent IRA owners who are over the age of 70 ½ from making Qualified Charitable Distributions (QDCs). QDCs allow IRA owners to use pre-tax dollars to satisfy their charitable intent, potentially creating a better tax result for the investor and the charity receiving the donation.
- The 30% AGI limit for contributions of long-term appreciated securities remains in place with no change.
If you are considering significant gifts this year to aid the efforts of the charities you support, we encourage you to reach out to us before making a gift. Structured correctly, charitable donations can greatly benefit the charity, the individuals and families it serves, and the generous person making the gift.
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.