The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020 provided incentives that encouraged charitable giving during a time of the COVID hardship. With the demands on charities increasing, the government extended these tax incentives for 2021 under the Consolidated Appropriations Act (CAA), signed into law by the President on December 27, 2020. Here’s what the new legislation could mean for your philanthropic clients.
It is important to note that:
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- Donor Advised Funds (DAFs), Private Foundations and Supporting Organizations are not eligible for CAA incentives.
- These incentives expire on December 31, 2021
- iGiftFund is unique among national DAF Sponsors in that we offer a range of donor fund options that are not DAFs and thus, are eligible to receive contributions that qualify for the CAA tax incentives. Call to learn more about these tax-smart solutions…that you can manage.
Here is a summary of the Consolidated Appropriation Act of 2021 (CAA) incentives:
» Required Minimum Distributions (RMD) –The RMD rules for clients age 72½ and older are back again for 2021. Clients can elect to take distributions from a traditional IRA starting at age 70½. By taking a Qualified Charitable Distribution (QCD), clients can virtually eliminate taxes on these distributions.
A QCD is a direct transfer of funds, up to $100,000 (same for an eligible spouse), from a traditional IRA, payable directly to a qualified charity regardless of RMDs. Amounts distributed as a QCD count toward satisfying RMDs.
» For clients who elect not to itemize and thus might not otherwise make a charitable gift – The CAA allows an above-the-line deduction for charitable contributions of cash, up to $300 per individual taxpayer/$600 for eligible couples filing jointly. This provision should help clients:
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- who elect not to itemize and thus might not otherwise make charitable
- whose charitable contributions already exceed AGI. Since it is considered an above-the-line deduction, the $300 reduces the client’s Adjusted Gross Income (AGI).
» For clients who elect to itemize –The CAA continues the increased Adjusted Gross Income (AGI) limits for cash contributions by individual donors. Individuals can deduct up to 100% of their AGI for cash contributions. The 30% AGI limit for non-cash contributions remains in force.
» For corporate clients– The deduction for charitable gifts continues at 25% of taxable income for corporations.
» For clients considering a Roth Conversion – The CAA continues to offer incentives for Roth conversions. Roth conversions are taxable as ordinary income. If your client contributes to a qualified charity in the year of a Roth conversion, the client can claim deductions for charitable contributions of cash up to 100% of AGI (30% for contributions of non-cash assets) as an offset to the increase in federal taxable income resulting from the Roth conversion. This may be a tax-smart strategy for clients age 59½ and older who are planning a large charitable contribution in 2021.
Existing 5-year carryover rules still apply. To take advantage of the increased AGI limit on qualifying cash contributions, clients must make an election, and complex ordering rules for AGI limits may apply.
Clients should consult with their tax and legal advisors to maximize the advantages of these charitable giving strategies.
To learn more about these creative fund options, call us at 1.800.810.0366.