We hope some of the added free time from social distancing has given you time to enjoy or pick up some new hobbies or just relax and read a book. If you haven’t had a chance to sit down with all 880 pages of the CARES Act yet, we’ve got you covered. Our hope with this blog post is that we can briefly summarize a few unique provisions allowed under the CARES Act specifically pertaining to charitable giving.
The CARES Act made changes to some charitable gifting rules and deduction amounts in 2020 and it may have an impact on the best charitable giving strategies for you this year. If you think any of the provisions in this post may apply to you, reach out to us! The application of some of these rule changes are unique to everyone’s own financial plans.
We’ve listed a few of the CARES Act changes below.
$300 Universal Charitable Deduction:
A few years ago, Congress increased the standard deduction on your taxes, making it less likely that you’ll itemize any deductions. This effectively prevented some individuals from deducting any charitable gifts made throughout the year. In 2020, however, the CARES Act will permit all taxpayers to deduct up to $300 from your income for any charitable cash contributions.
To illustrate, whether you claim the stand deduction or itemize your deductions, as long as you give $300 or more to a charity in 2020, this rule change will allow you to deduct $300 from your taxable income. If you were in the 22% tax bracket, for example, this would translate to a tax savings of $66 (22% x $300).
Increased Charitable Deduction Limit:
Additionally, for those that do plan to write off itemized deductions on their taxes in 2020, the CARES Act made another change. In years past, there has been a limit on the amount of charitable contributions you can deduct on your taxes each year. That limit was 60% of your income. In 2020, the limit has been increased to 100% of your income. For most taxpayers, this will have no impact, but it is still worth noting.
IRA Charitable Distributions:
Typically, distributions from IRA accounts are taxable, however, if you are older than 70.5, the IRS permits IRA owners to make charitable gifts directly from their IRAs without paying any taxes. These charitable IRA distributions have always been a great tax planning opportunity for those that are charitably inclined and meet the age requirement.
In 2020, the CARES Act lowered the age requirement and extended this charitable gifting provision to all IRA owners over the age of 59.5. For those already in their retirement years actively making withdrawals from your IRA and planning to make charitable gifts this year, taking advantage of this opportunity may be appropriate. This method of giving eliminates taxes you would have otherwise owed on your IRA money.
It should be noted, however, that this rule change might not be the most logical solution for every IRA owner over 59.5. If you’re not currently already taking distributions from your IRA, it may be best to keep your tax-deferred dollars in your IRA for as long as possible to allow those funds to continue growing until you need your IRA to fund retirement expenses.
As always, if you think this rule or any of the changes under the CARES Act mentioned above apply to you, don’t hesitate to reach out to ask questions!
The content provided herein is based on our interpretation of the CARES Act and is not intended to be legal advice or provide a tax opinion. This document is a summary only and not meant to represent all provisions within the CARES Act. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.