During these unprecedented times, the need for giving remains stronger than ever. Fortunately, the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) earlier this year provides several incentives for those inspired to help.
Below are some key charitable giving tips and reminders for 2020. Be sure to consult your tax and financial advisers as you finalize your plans.
Let's start with CARES Act charitable incentives.
• Standard deduction households:
Taxpayers taking the standard deduction may deduct up to $300 per filing household for cash charitable contributions made to qualified 501(c) (3) charities during 2020, excluding donor-advised funds, private foundations and supporting organizations.
• Itemizing households:
Through 2020, donors may deduct up to 100% of their Adjusted Gross Income (AGI) for cash charitable contributions to qualifying 501(c) (3) charities, excluding donor-advised funds, private foundations, and supporting organizations. The deduction rules for contributions to these "non-qualified" charitable vehicles remain unchanged.
• Appreciated assets:
Contributions of appreciated assets held for a year or more (stocks, mutual funds, real estate, closely held business interests, etc.) to qualified charities, donor-advised funds and supporting organizations are also excellent assets to consider gifting. They remain limited to a deduction of up to 30% of donors' AGI. Contributions of such assets to private foundations remain capped at 20%.
Utilizing a combination of these options, itemizing taxpayers can deduct up to 100% of their 2020 AGI via charitable gifts. Those who make this 100% of AGI election can also carry forward unused qualified cash gift deductions up to five years. The carryforward will be subject to the normal 60% of AGI limit, as will cash deductions carried forward from past years. A five-year carryforward also exists for unused qualified gift deductions of long-term appreciated assets up to their regular limits.
• Corporate gifts:
For corporations during 2020, the 10% gross income-based limitation has been increased to 25% for charitable contributions made in cash to qualifying 501(c) (3) charities, excluding donor-advised funds, private foundations and supporting organizations.
• Qualified charitable distributions (QCDs):
The CARES Act has suspended Required Minimum Distributions (RMDs) for 2020. However, donors 70½ and older can still make Qualified Charitable Distributions (QCDs) from traditional and other types of IRAs to qualified charities (excluding donor-advised funds, private foundations and supporting organizations). The limit on these donations remains $100,000 per individual or $200,000 per married couple.
Per the new rules on QCDs established under the SECURE Act in late 2019, deductible contributions made by donors 70½ and older to their IRAs will reduce their QCD limit in kind by the amount of the contribution for the year it is made.
• Opportunity for IRA owners 59½-70½:
Under the CARES Act, itemizing donors of all ages may choose to deduct up to 100% of their AGI for cash charitable contributions during 2020. This provides donors ages 59½ to 70½ with a tax benefit similar to a QCD. They can elect a cash distribution from their IRA, contribute it to charity, and potentially offset any tax consequences from the distribution by taking a charitable deduction in an amount up to 100% of their AGI.
Donor-Advised Funds (DAFs) are perfect for those needing a year-end tax deduction but who want the flexibility to give to charities later. The donors make a tax-deductible gift to a fund host -- such as a community foundation or other public charity sponsor -- and open a DAF. The charity then owns and invests the DAF's assets and the donors or advisers whom they name recommend grants to qualified charities over time. Further contributions can be added as desired or when prudent.
• Year-end giving reminders:
Gifts of cash, checks and appreciated assets must be completed or postmarked by Dec. 31 to be deductible in 2020. Stock transfers can be executed within days, but be sure to allow ample review and processing time (30-90 days or more) for complex gifts like mutual funds, real estate, closely held business interests, insurance, alternative investments, etc.
Giving Tuesday is Dec. 1 this year, another great opportunity to make a year-end contribution to your favorite nonprofit organization.
For more information about year-end giving strategies or for help accomplishing your or your clients' personal charitable goals, please contact DuPage Foundation at (630) 665-5556 or visit dupagefoundation.org.
• Michael Sitrick, JD, CFRE, is vice president for advancement and Alice Wood, JD, is director of gift planning for DuPage Foundation. They work with donors to match charitable intentions to the maximum community impact.