The CARES Act and Charitable Giving
The new CARES (Coronavirus Aid, Relief, and Economic Security) Act is designed to help both businesses and nonprofits facing economic challenges during the coronavirus pandemic. We thought it might be beneficial to share a few key provisions of the CARES Act, and some other thoughts about giving in these days that may affect you and your charitable goals.
After the 2017 tax reform law, which nearly doubled the standard deduction, the number of Americans claiming the itemized deduction for charitable gifts dropped (as was predicted). The law also triggered a decline in charitable donations by individuals (again, as predicted). But with the coronavirus crisis upon us, our government realized that the world is going to need help from churches, food pantries, Christian non-profits and other charitable organizations more than ever to climb our way back to normal. To encourage more charitable giving in 2020, the recently enacted government stimulus bill (the "CARES Act") provides some additional tax relief for donors. This makes it easier to give and save at the same time.
New Tax Incentives
The CARES Act expands charitable giving incentives and allows taxpayers who take the standard deduction to make up to $300 of charitable contributions to qualified charities this year. You might think this is a small amount and would not make a difference. But what if all of our donors gave “just” $300? Such support would have a huge impact on those we serve.
On the other end of the giving spectrum, under the 2017 tax reform law, taxpayers who do itemize their deductions were allowed to deduct charitable contributions only up to 60% of their adjusted gross income. Any contributions over this amount must be deducted in future years. For example, if your AGI is $100,000 you may deduct no more $60,000 in charitable contributions; so if you contribute $70,000, the extra $10,000 must be deducted the next year.
For 2020 only, the CARES Act allows itemizers to deduct contributions up to 100% of their AGI. Thus, for example, if your AGI is $100,000, you may deduct $100,000 in charitable contributions and wipe out your income tax liability entirely. This change will be helpful to some who are able to give large donations and are charitably inclined.
The new law temporarily suspends the requirements for required minimum distributions (RMD) for the 2020 tax year. This probably comes as a relief to many of you who would have had to withdraw from your retirement accounts. Many donors use their RMD to make a gift from their IRA. Despite the RMD suspension, remember that if you are 70 ½ or older, you can still make a gift from your IRA or name a nonprofit as a beneficiary.
Why a Gift from Your IRA May Still Be a Good Idea
Your gift will be put to use today, allowing you to see the difference your donation is making
You pay no income taxes on the gift. The transfer generates neither taxable income nor a tax deduction, so you benefit even if you do not itemize your deductions.
Since the gift doesn’t count as income, it can reduce your annual income level. This may help lower your Medicare premiums and decrease the amount of Social Security that is subject to tax.
Donor Advised Funds
Finally a point of interest not specifically related to the CARES Act is that the number of contributions to donor advised funds have increased in recent years. These funds allow individuals and families to take a current tax deduction for contributions made to the fund; this is an important feature because it allows a donor to take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later. This incentivizes donors who need a tax deduction to make a donation now and then decide where the money will go at a later time when it’s convenient or most needed. If you or your family have established such a fund in past years, now is an excellent time to show your support for the causes that are most important to your family in a time of unusual need.
Conclusion
We recommend that you consult your tax advisor to see what makes the most sense for you and your family as you consider taking advantage of the provisions of the new law.
We are grateful for you, and we thank you very much for your continued support for His Voice Global and other causes that advance God’s Kingdom in a world that needs to hear of His great love for us.