In late March, Congress passed the Coronavirus, Aid, Relief and Economic Security Act, aka the CARES act. Most of this $2.2 trillion bill was focused on direct payments to households, enhanced unemployment benefits, bailouts for airlines and other distressed industries, and loans and grants for small businesses. Although most of our clients won't ever see a stimulus check in the mail, there are some tax relief provisions in the bill that are well worth noting.
Tax relief for charitably inclined donors
In recognition of the fact that many charities’ fundraising efforts are impeded at the very time there is a tremendous need for services due to the coronavirus pandemic, the CARES act allows for the following:
- New Charitable Deduction Available for Non-Itemizers* The tax reform of 2017 nearly doubled the standard deduction for taxpayers which triggered a decline in charitable giving since many taxpayers could no longer deduct their donations. Under the CARES Act, taxpayers who do not itemize their deductions will be able to claim a charitable deduction of up to $300 for cash donations made in 2020.
- Charitable Deduction Limits Modified for Individuals in 2020* Donors who made a large cash gift in 2019 could deduct it only to the extent of 60% of adjusted gross income. This year, the CARES Act allows donors to deduct 100% of their adjusted gross income. If you have made a multi-year pledge, you may want to accelerate payment of the pledge balance in 2020 to take advantage of the larger deduction.
*In most cases for the first two items, gifts must be made to pubic charities, as opposed to donor-advised funds.
- Increased Charitable Deduction Limits for Corporations in 2020 The contribution limit for corporations has been 10% of taxable income. For 2020, that limit has been raised to 25% for cash contributions. The purpose is to enable companies that are doing well in this economy to give more to their communities. The Act also increases from 15% to 25% the percentage of taxable income certain corporations claim when they contribute food inventory for the needy.
Additional Tax Perks
The following two provisions aren't necessarily related to charitable giving but are tax perks to consider when updating your overall investment or giving strategy.
- Waiver of Retirement-Plan Penalties for Purposes Related to the Coronavirus Owners under the age of 59½ who withdraw money from a retirement plan to cover expenses incurred by themselves or a family member related to treatment of the coronavirus do not have to pay the 10% tax penalty for early withdrawal. In addition, taxation of the distribution can be spread over three years, and the owner can add the withdrawn amount to the fund later without regard to contribution limits.
- Required Minimum Distributions Waived in 2020 Regardless of the age of the account owner, IRA owners and plan participants of certain qualified retirement plans will not be subject to any required minimum distributions for the year 2020.
The CARES Act is several hundred pages long and includes numerous provisions that could benefit investors financially. For example,
this may be a good time to consider a Roth conversion while values are down and potential charitable contribution deductions are high. Of course
we suggest you consult with your own tax advisor regarding the new provisions, but we would be happy to discuss your individual situation with you.
The Pentera Blog and PlannedGiving.com