Some donors may feel the need to cut back on their charitable giving during these unprecedented times in the financial marketplace. With cancelled fundraising efforts, many charities around the country are feeling stresses in their operating budgets. There is hope: Signed into law in 2020, the CARES Act includes significant incentives for charitable giving but these incentives are only available in 2020.
Note: Donor Advised Funds (DAF), Private Foundations and Supporting Organizations are not eligible for CARES Act incentives. See Note 1 below for iGiftFund’s unique donor fund options which are eligible to receive contributions that qualify for these incentives.
Here is a summary of the CARES Act incentives:
- Required Minimum Distributions (RMD) – Although the CARES Act waives RMDs for calendar year 2020, clients can still elect to take distributions from a traditional IRA starting at age 70½. Clients can virtually eliminate taxes on these distributions by taking a Qualified Charitable Distribution (QCD).
A QCD is a direct transfer of funds, up to $100,000 (same for eligible spouse), from a traditional IRA, payable directly to a qualified charity. When reinstated in 2021 or when the client reaches age 72, amounts distributed as a QCD count toward satisfying RMDs.
For clients who elect not to itemize – The CARES Act allows an above-the-line deduction for cash charitable contributions of up to $300 per individual taxpayer/$600 for eligible couples filing jointly. This provision should help clients:
- Who elect not to itemize and thus might not otherwise make charitable contributions.
- Whose charitable contributions already exceed AGI limits.Since it’s considered an above-the-line deduction, the $300 reduces the client’s Adjusted Gross Income (AGI).
- For clients who elect to itemize – Prior to the CARES Act, the amounts claimed as deductions for charitable contributions cash were subject to a limit of 60% of adjusted gross income (AGI). The CARES Act increases AGI limits for cash contributions by individual donors. Now, 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 has increased from 10% to 25% of taxable income for corporations.
- For clients considering a Roth Conversion -The CARES Act makes Roth conversions more attractive. 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 under the CARES Act for charitable contributions up to 100% of AGI as an offset to the increase in federal taxable income resulting from the Roth conversion. This may be a tax-smart strategy for clients 59½ and older who are planning a large charitable contribution in 2020.
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.
Note 1 – Donor Advised Funds (DAFs), Private Foundations and Supporting Organizations are not eligible for CARES Act incentives.
Unique among national DAF Sponsors, iGiftFund offers a range of donor fund options that are not DAFs and thus are eligible to receive contributions that qualify for the CARES Act tax incentives. Similar to a donor advised fund in many respects, but with certain donor restrictions, these Fund options include: Designated Funds, Field-of-Interest Funds, Restricted Funds, Unrestricted Funds, Scholarship Funds, and Charitable Endowments. Call to learn more about these creative fund options.