The CARES Act is the Coronavirus Aid, Relief, and Economic Security Act enacted in March in response to the COVID-19 pandemic. It provides temporary changes in 2020 to the tax laws to encourage increased charitable giving. These changes include enhanced tax benefits in 2020 for charitable gifts, as well as favorable changes impacting the tax treatment of withdrawals from qualified retirement accounts.
Not itemizing your deductions?
Individuals and couples who don’t itemize and instead take the standard deduction will be permitted an above-the-line deduction of up to $300 per taxpayer, or $600 per married couple, for charitable contributions in 2020.
This deduction will reduce a donor’s adjusted gross income (AGI) and thereby reduce their taxable income.
Truth For Life donors who do not itemize should take advantage of this new deduction available in 2020. Please note that a donation to a donor-advised fund (DAF) does not qualify for this new deduction.
Itemizing your deductions?
Individuals and couples who itemize their tax deductions can elect to deduct charitable contributions up to 100% of their 2020 AGI, including both cash gifts (up from 60% previously) and/or publicly traded securities (limited to 30% of AGI).
Giving through a corporation?
Corporations may deduct up to 25% of taxable income, up from a limit of 10%. This increase in contribution limits applies only to gifts made to a 501(c)(3) religious charity such as Truth For Life, a church, or a public charity. The higher deduction does not apply directly to a DAF.
Giving from a qualified retirement account?
For individuals or couples planning to make significant gifts using funds from a qualified retirement plan, they may want to consider how the CARES Act can accelerate those plans. This strategy benefits donors who are not subject to the early withdrawal penalties (generally before age 59½) or who qualify for the elimination of the early withdrawal penalty under the Act. If in 2020 an individual or couple donates the cash withdrawn from a retirement plan to a qualified public charity like Truth For Life, it’s possible to offset 100% of the federal income taxes due to the higher charitable contribution limits in 2020 discussed above.
Required Minimum Distributions (RMD) Waived:
Required minimum distributions for individuals 70½ are suspended until 2021, which includes distributions from a qualified retirement plan. Donors can still make a qualified charitable contribution of up to $100,000 directly from their IRA to a charity while avoiding taxable income and still reducing their taxable IRA balance. This allows all taxpayers, both itemizers and non-itemizers, to give gifts directly from their IRA to charities in a tax-efficient manner.
This CARES Act information above is general in nature. Please consult your tax adviser to better understand how 2020 tax changes affect your personal situation.
