By Kal Grant and Jackie Wheeler Davis
It is no secret the Coronavirus has impacted the way Americans live their day-to-day lives. The virus has negatively affected many Americans’ jobs, livelihood, and finances. In such an uncertain time, it may be difficult to think about charitable giving, but there is a great need. For those Americans who want to help, the CARES Act, signed into law on March 27, modified current tax law to encourage charitable giving. Specifically, the CARES Act created two new tax incentives.
For Taxpayers Who Do Not Itemize Deductions: New Charitable Deduction Available
The CARES Act allows taxpayers who will take the standard deduction on their 2020 tax return to claim an additional deduction (in addition to the standard deduction) up to $300 per taxpayer ($600 for a married couple) for charitable donations. Prior to the CARES Act, taxpayers had to itemize to get a tax break for charitable contributions. For a donation to qualify for this deduction, the contribution must be made in cash, and cannot be made to a private foundation or donor advised fund.
For Taxpayers Who Itemize Deductions: Increased Charitable Deduction Limit
The CARES Act increases the amount of charitable contributions taxpayers who itemize and corporations can deduct. Taxpayers can elect to deduct charitable donations up to 100% of their 2020 adjusted gross income (AGI). Previously, taxpayers were only allowed to deduct donations up to 60% of their AGI. Corporations may deduct up to 25% of taxable income, which is an increase from the previous limit of 10%. This increased charitable deduction limit only applies to cash donations to public charities. The new limit does not apply to donations to private foundations or donor advised funds.
Waiver of Required Minimum Distributions from Retirement Plans in 2020
While the CARES Act created two new incentives for charitable giving, the Act may have also reduced charitable giving by waiving required minimum distributions in 2020 for individuals over the age of 70½. Gifting the required minimum distribution to a charity through a qualified charitable contribution (QCD) has been a tax advantaged way of making a charitable gift while avoiding taxable income for several years. The waiver of the required minimum distribution requirement may have a negative impact on the incentive to give; however, a QCD will still decrease an individual’s taxable IRA balance and ultimately have a positive tax impact.
Kal Grant is an experienced wealth planning attorney and trust and estate strategist. Kal works closely with clients to counsel them through the optimal creation, use, and coordination strategies of estate planning vehicles and techniques, including trusts, family-owned entities, charitable planning, and various disposition matters. With more than 25 years in the industry, Kal has gained particular knowledge and understanding of the processes and resources necessary to guide individuals, families, and nonprofit organizations through the creation, establishment, and sustentation of their charitable mission. She previously led an advisory team dedicated to providing nonprofit organizations strategic advice and planning, governance and fiduciary assistance, philanthropic research and best practices.
Jacqueline W. Davis serves clients with matters pertaining to wealth planning, estate and trust administration, and tax-exempt organizations. Jackie’s experience ranges from planning for the disposition of small simple estates to planning for management and disposition of complex estates including the drafting and implementation of family limited liability entities, management trusts, and other taxable and nontaxable gift transactions.
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