President Donald Trump signed into law the Coronavirus Stimulus Bill on March 27, 2020. At over eight hundred pages long, the bill offers much-needed support for American citizens and businesses. The bill includes stimulus checks for Americans if you meet certain criteria, support for small businesses, the ability to skip your 2020 required minimum distributions (RMD), changes to tax benefits for charitable donations, and much more. Here we will highlight the RMD and charitable deduction changes. Schneider Downs & Co. is providing detailed information about this legislation. To view those updates, please
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Required Minimum Distributions for 2020
If you have a retirement account and are required to take a RMD in 2020, you no longer have to do so. The stimulus bill provides a one-time exemption for your 2020 RMD.
The RMD is calculated by taking the prior year ending value of your retirement account divided by a factor based upon your life expectancy. Congress recognizes that it could be problematic to take your RMD now. Why? In 2019, equity and bond markets did very well. The calculation requires that you use that high value; however, we all know that the markets have taken a hit since then. Using the December 31, 2019 value may cause many individuals to sell positions that are currently down in order to meet the requirement. If you already took your RMD, or raised the cash to do so before the equity market began to fall, you should not be in that position. You do still have a choice, though, if you do not need your IRA distributions to meet your cash flow. You may want to avoid taking all or some of the dollars out of your IRA this year. Everyone’s personal situation is different, so now is a good time to review your IRA distribution with your financial advisor to determine what options are available and what the best strategy is for you.
Charitable Deduction Changes
The stimulus bill incentivizes Americans to help others in need. Prior to the legislation, if you gave a public charity a cash donation, you could only deduct a donation up to 60% of your adjusted gross income and you must be able to itemize your deductions. In 2020, taxpayers can deduct cash donations up to 100% of adjusted gross income to public charities. Please note that this change does not apply to contributions to a donor advised fund (DAF) or a private charity.
The bill also includes a charitable deduction benefit that almost everyone who does not itemize deductions can claim on their tax return. If you claim the standard deduction and make a cash donation to a public charity, you can deduct a gift of up to $300 against your gross income. The donation has to be a cash gift to a public charity. This deduction also does not apply to private charities or DAFs.
We hope you and your family stay safe during this unique and challenging time period. We will continue to provide updates or links that we believe you and your family will find useful.