The CARES Act which provides relief for the nation includes provisions to encourage charitable giving.
For those who don’t itemize their tax returns, gifts to charities of “up to $300” can be deducted. For those who do itemize, and who make more substantial contributions, there is a one-time opportunity to deduct up to 100% of AGI (adjusted gross income), this year, and this year only.
This sounds straight forward, but as with all things relating to taxes, it is not. The deduction is only for gifts of cash and does not allow for gifts to donor-advised funds, private foundations, or charitable trusts. All of the existing rules and limitations apply. As a quick reminder, the existing deduction for contributions made into a donor-advised fund is 60% of AGI in cash, and up to 30% AGI in appreciated assets like stock or property.
One strategy a donor may employ to take advantage of the one-time tax deduction of up 100% of AGI is to give stock, which can be contributed into a donor-advised fund but is limited to 30% of AGI, and then give cash directly to charities up to the remaining 70% of AGI. Although donor-advised funds are not allowed, cash gifts to the Community Foundation COVID-19 Relief Fund, one of our scholarship funds, an organizational endowment, or the Community Endowment, are acceptable for the one-time charitable deduction.
The CARES Act did not change the rules around the QCD (Qualified Charitable Distribution) from an IRA, which allows individuals over 70½ years old to donate up to $100,000 in IRA assets directly to charity1 annually, without taking the distribution into taxable income. But, since the CARES Act provides that an individual can elect to deduct 100 percent of their AGI for cash charitable contributions, this effectively affords individuals over 59½ years old the benefits similar to a QCD; they can take a cash distribution from their IRA, contribute the cash to charity, and may completely offset tax attributable to the distribution by taking a charitable deduction in an amount up to 100 percent of their AGI for the tax year. If you are planning a large charitable donation in 2020, this may be a smart strategy as long as you are between the ages of 59½ and 70½ and are not dependent on existing retirement funds.
For many donors who do complex tax planning, strategies already employed when the market dropped in March for “tax loss harvesting” to realize losses in stocks to offset AGI this year may mean that reported income for 2020 may not be that high. These strategies can still make sense to ensure that donors have little to no tax liability this year.
You can find more information about the CARES act on our website, nevadafund.org
The stock market has been incredibly resilient through the pandemic. It may be a good time to consider both the timing of your 2020 giving and your decisions about how and what to give to maximize your tax savings.
Your charitable gifts are needed now, and you will be rewarded for giving with a tax benefit. The Community Foundation is here to help you contribute in a way that is meaningful to you and to the people and organizations you support. If you’d like to explore options and tax strategies for giving to help our community while maximizing your personal financial goals, please give me a call or speak with your advisor.
Chris Askin, President, and CEO
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