On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became law. Below is a brief outline of new tax savings opportunities when donating to a 501 (c)3 charitable organization.
Should I itemize my deductions?
For cash contributions made in 2020 ONLY, you can now elect to deduct up to 100 percent of your AGI (increased from 60 percent). For example, taxpayers with $500,000 in AGI making cash gifts of $500,000 to a qualified charity would owe no federal income tax in 2020. Cash gifts to private foundations and DAF’s do not qualify.
After 2020 taxpayers with $500,000 in AGI making cash gifts of $500,000 to a qualified charity will have had their charitable deduction capped at $300,000; the remaining $200,000 in unused deductions will be eligible for a 5-year carry-forward.
Should I take the standard deduction?
There is a new “above the line” adjustment to income for 2020 that will reduce a donor’s adjusted gross income (AGI), and thereby reduce taxable income up to $300 per taxpayer and $600 for married filing joint. This is a dollar for dollar deduction, meaning that for every dollar you give, you reduce your taxable income by that amount, up until the limits listed above.
Have Required Minimum Distributions (RMD) changed?
RMD has been waived for most donors in 2020. For taxpayers who normally would be required to withdraw retirement assets, the annual RMD requirement has been suspended for 2020 and won’t begin again until 2021. This includes distributions from defined benefit pension plans and 457 plans.