Thank you for answering the call to support DeSales High School through the Colts Helping Colts Initiative. Through the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act, there are now additional benefits to support non-profit organizations such as DeSales.
New Deduction Available: Section 2204 of the CARES Act makes a new deduction available for up to $300 per taxpayer ($600 for a married couple) in annual charitable contributions. This is particularly beneficial to people who take the standard deduction when filing their taxes (in other words for taxpayers who do not itemize their deductions). It is calculated by subtracting the amount of the donation from your gross income. It is an “above the line” adjustment to income that will reduce your adjusted gross income (AGI) and thereby reduce taxable income. Currently, this universal charitable contribution deduction is temporary and will only apply to contributions made in 2020.
To qualify, you would have to give a donation to a qualified charity. If you have already made your donation since Jan. 1, that contribution counts toward the $300 per adult cap.
The CARES Act suspends the existing 60% adjusted gross income (AGI) limitation for individual charitable contributions in 2020. With this new policy, individuals can deduct donations up to 100% of their 2020 AGI. This change only applies to cash contributions and gifts to donor advised funds (DAFs) do not qualify for this new deduction.
New Charitable Deduction Limits: Also part of the bill, individuals and corporations that itemize can deduct much greater amounts of their contributions.
Individuals can elect to deduct cash contributions, up to 100% of their 2020 adjusted gross income, on itemized 2020 tax returns. This is up from the previous limit of 60%.
The CARES Act increases the current taxable income limit on cash contributions made by corporations from 10% to 25% for 2020.
The new deduction is only for cash gifts that go to a public charity. If you give cash to, say, your private foundation, the old deduction rules apply. And while the organizations that manage DAF’s are public charities, you do not get the higher deduction for donating cash to your 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 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 advisor. 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.