The CARES Act offers individuals and businesses greater incentives to maintain or increase charitable giving in 2020, even when they may be facing their own personal struggles to survive the financial impact of the COVID-19 health crisis.
Effective for 2020, individuals who itemize deductions on their federal income tax returns may write off the full amount of any cash contributions they make during the year to qualifying nonprofits, including publicly funded charities and certain foundations but excluding private foundations or donor-advised funds. In fact, you may choose to donate all your adjusted gross income (AGI) for 2020 to a charitable organization and avoid paying federal taxes on that income. Ordinarily, the deduction would be limited to 60 percent of the taxpayer’s AGI.
If you do not itemize and instead claim the standard deduction, you may be able to deduct from your taxable income up to $300 for cash contributions you make to qualifying nonprofits during the year.
The CARES Act also makes it more tax-efficient for retirees age 70½ or older to increase their philanthropy this year by allowing them to defer required minimum distributions (RMDs) from their retirement account and eliminate their exposure to income tax on withdrawn amounts. Moreover, retirees may take advantage of existing tax law and reduce the size of their taxable estates by transferring up to $100,000 from their retirement accounts directly to qualifying nonprofits via qualified charitable contributions (QCDs).
The CARES Act also provides a boost to corporate giving in 2020 by increasing the deduction C corporations may receive for charitable contributions of cash to 25 percent of the business’s taxable income, up from 10 percent. For all other business entities whose company income passes through to its owners, the increased individual charitable deduction of up to 100 percent of AGI will apply.
Charitable giving has always played a critical role in estate planning, providing families with opportunities to maximize tax-efficiency and create a legacy of philanthropy for the greater community good. During these very challenging times, families may consider working with their professional financial advisors to accelerate their giving strategies and ensure essential services continue to reach those in need.
About the Author: Lee F. Hediger is a co-founding director and chief compliance officer with Provenance Wealth Advisors (PWA), an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email firstname.lastname@example.org.
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Lee F. Hediger is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC.
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