The Coronavirus Aid, Relief and Economic Security Act was signed into law on March 27, 2020. Among many other provisions, the Act provides incentives for people to continue giving to churches and nonprofits so they can continue to serve the community. I. CARES Act Provisions for Taxpayers who take the Standard Deduction
a. Since the 2017 Tax Act significantly increased the taxpayer’s standard deduction, most taxpayers no longer itemize. The standard deduction is the benchmark for whether it makes sense to itemize things like property tax and charitable gifts. As a result of that increased benchmark, there are less perceived tax benefits related to charitable giving.
b. To promote charitable giving in 2020, the CARES Act creates an above-the-line deduction for cash contributions to nonprofits of up to $300 for taxpayers who take the standard deduction.
II. CARES Act Provisions for Itemizing Taxpayers
Itemizing taxpayers can make tax-deductible charitable contributions of cash of up to 100% of their 2020 adjusted gross income. Previously the tax-deductible contribution limit was 60%.
III. Other Options for Individuals Over Age 70½: RMDs and QCDs
a. Required Minimum Distributions (RMDs) Although the CARES Act suspends required minimum distributions from tax-deferred retirement accounts for the 2020 tax year, qualified charitable distributions (QCDs) are still possible for individuals who are over 70½ and who have assets in a Traditional IRA.
RMDs from your IRA are taxable income. That additional income can move you into a higher tax bracket, reduce your eligibility for certain tax credits and deductions, and you may have to pay a Medicare surcharge if your taxable income is too high.
The 2020 “pause” in RMDs would be a great time to work with your Foundation representative and your tax advisor to develop a strategy to help you use your assets to accomplish the goals that are important to you.
b. Qualified Charitable Distributions (QCDs) Making a qualified charitable distribution means requesting that a distribution from your IRA be paid directly to a qualified charity, which reduces the future tax liability on the withdrawal of those assets. The SECURE Act (December 2019) pushed the RMD age back to 72 for many seniors; however, it did not change the eligibility age for making QCDs. The QCD age is still 70½.