Many individuals are looking for ways to give back during the coronavirus pandemic. What you may not know is that the Coronavirus Aid, Relief, and Economic Security (CARES) Act contains provisions that could make it easier to take tax deductions on charitable donations in 2020.
Here are possible charitable giving options that you may want to consider.
Charitable contribution changes in the CARES Act
For 2020, there’s no income limit on the deduction of cash gifts to eligible charities, excluding donor-advised funds or other supporting organizations. (The deduction for cash gifts to donor-advised funds is still limited to 60% of adjusted gross income.)
- If you’re in a position to make generous gifts, you could potentially offset all of your taxable income for 2020.
- Likewise, cash gifts could potentially be used to offset Roth IRA conversion income or capital gains realized upon the sale of a concentrated position or real estate.
- The CARES Act waived required minimum distributions (RMDs) in 2020—but qualified charitable distributions (QCDs) are still allowed for anyone age 70½ or older from a Traditional and Inherited Traditional IRA.
Determining the best way to give
Given the expanded options available, you may want to consider one or more of the following:
- QCDs. Distributions are tax-free and not included in adjusted gross income. Future RMDs may be smaller since distributions lower the year-end balance, which could result in future tax benefits if tax rates increase in later years.
- Cash gifts to eligible charities. These may be deductible up to $300 in addition to the standard deduction. This is a benefit to those who do not itemize deductions. You may offset up to 100% of adjusted gross income if you itemize your deductions, providing a current tax benefit.
- Stock gifts. These provide a current tax benefit if you itemize your deductions; they also allow you to avoid taxation on the stock’s appreciation. Deductions for stock gifts are limited to 30% of adjusted gross income when contributing to public charities.
Before taking any action, consult with a tax advisor to help determine the best possible outcome.