While 2020 certainly has been a year that most would simply like to leave behind us, there have been a few silver linings that are worth enjoying before the year closes (and beyond). Cape Fear Literacy Council Board Member and Fund Development Committee Chair, Michealle Gady, outlines the tax perks provided to donors by the CARES Act of 2020.
Charitable organizations continue to step up and lend a hand when individuals and families experience hardship. This year there are a number of charitable incentives in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) that may be beneficial to donors, so we took it upon ourselves to outline them here.
INCREASED FEDERAL TAX WRITE-OFFS FOR CHARITABLE CONTRIBUTIONS
For the 2020 tax year, donors can deduct cash contributions to most charities up to 100% (formerly 60%) of their adjusted gross income (AGI). This may allow some donors to decrease their 2020 federal tax significantly. Donors may also be able to carry forward their unused cash contribution deductions for up to five years. However, contributions to donor advised funds or supporting organizations are not eligible for this increased deduction. There are also specific scenarios where deducting 100% of cash contributions might not be advantageous.
For non-itemizers, there is also a $300 charitable deduction which can still help reduce your taxable income through cash contributions to public charities. For corporations, the deduction for cash contributions to public charitable donations rises from 10% in previous years to 25%.
MINIMUM DISTRIBUTIONS FROM RETIREMENT PLANS
Under the CARES Act, most required minimum distributions (RMD) – the minimum amount you are required to take each year from your individual retirement accounts (IRA) - are waived for 2020. Individuals will want to check to determine if this temporary rule applies to them. The waiver of the requirement will help individuals in a position to forgo the distribution from receiving higher tax bills for 2020.
If your minimum distribution has already begun, the distribution may still be required to move forward through some defined pension plans. Some required minimum distributions that would have started in 2020 now may not have to start until 2021.
QUALIFIED CHARITABLE DEDUCTIONS
Qualified charitable deductions (QCD) are still a really good way for donors 70.5 years of age and older to make contributions. Part of the CARES Act temporarily eliminates most RMD, but donors in this age range who choose not to defer their distribution can still donate up to $100,000 from their IRA without paying income tax. For those whose distributions pushes them into a higher tax bracket, the QCD may help to reduce the value of the IRA tax-free and, as a result, lessens the amount of upcoming taxable RMD.
ALTERNATIVES TO CASH CONTRIBUTIONS RIGHT NOW
If you can’t make cash contributions to the charities working to keep us afloat during this time, we suggest you consider making in-kind donations of goods and services. If you’re a business and you donate food inventory in 2020 for the care of persons in need, the allowable deduction of qualified contributions has been raised from 15% of your aggregate net income to 25%.
It goes without saying that all of these decisions are highly personal and it is important to first check with your financial advisor before making any tax decisions. In whatever way it is that you’re contributing, we thank you.
Michealle Gady is a member of the Cape Fear Literacy Council’s Board of Directors and Chairwoman of the organization’s Fund Development Committee. She is the founder, president, and CEO of Atrómitos, an SBA-certified woman-owned management consulting business.
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