Today, on Giving Tuesday, let’s review the income tax benefits of giving to charity, notably a one-time (2020 only) $300 “above-the-line” charitable deduction for certain taxpayers.
CARES Act and Charitable Giving
After the 2017 tax reform substantially increased the standard deduction, many taxpayers no longer itemize their deductions and reap no tax benefit from charitable gifts. The CARES Act, passed in March 2020 for Coronavirus Aid and Relief, helps “non-itemizers” by allowing for a $300 above-the-line deduction for charitable gifts made in 2020. This special deduction is for cash donations to qualifying charities for 2020 only and is available to taxpayers who take the standard deduction and do not itemize their deductions. The $300 deduction is per tax return (i.e. a married couple does not get $600) and donations to a donor-advised fund do not qualify.
Another CARES Act provision, of importance to charitably inclined taxpayers who itemize their deductions, is a one-year (2020 only) change to the limitation on cash contributions. Rather than cash contributions being limited to 60% of income, taxpayers can deduct up to 100% of income for 2020. Taxpayers should work with their tax advisor if they are considering large cash contributions to maximize the tax benefit.
Qualified Charitable Distribution for those 70.5 and Older
For those taxpayers age 70.5 and older with an IRA, a Qualified Charitable Distribution may make sense, especially for those that do not itemize their deductions. A distribution direct to charity from the IRA does not count as income to the taxpayer (and there is no deduction for the gift). Refer to the webinar recording in the final paragraph for more information on this.
As we look beyond Giving Tuesday and turn to year-end tax planning, there are additional considerations and tips to maximize the tax benefits of charitable gifts for charitably inclined taxpayers. A well thought out charitable gifting plan could yield significant tax savings. For example, donating appreciated securities to a donor-advised fund can be a great solution for certain taxpayers. Front-loading future years of charity to surpass the standard deduction may make sense. Also, front-loading charity in the final year of high income (e.g. before retirement) could be a very wise tax move. Combining a Roth IRA conversion with additional charity is another idea.
Watch Our Webinar Recording
Want to learn more about the above strategies? A webinar from June 2020 is available for playback and describes the charitable giving strategies mentioned. Discussion about standard deduction vs. itemizing begins at the 30-minute mark and is followed by Charitable Giving Strategies Overview (35:00 to 39:34), Donor Advised Funds (39:35 to 48:43), and Qualified Charitable Distribution (48:44 to 51:37). The watch is well worth twenty minutes of your time. Enjoy!
How DHJJ Can Help
On Giving Tuesday or any day, if you have questions on charitable giving, please contact DHJJ at 630-420-1360 or fill out the form below.