Given the extraordinary events surrounding the coronavirus pandemic, many of us already have looked for ways to contribute. What you may not know is that the Coronavirus Aid, Relief, and Economic Security (CARES) Act contains provisions to make it easier to take tax deductions on charitable donations in 2020.
We have summarized the changes in the CARES Act and outlined the possible charitable giving options that you may want to consider.
Charitable contribution changes in the CARES Act
For 2020, there’s no income limit on the deduction of cash gifts to eligible charities, excluding donor advised funds or other supporting organizations. (The deduction for cash gifts to donor advised funds is still limited to 60% of adjusted gross income.):
- If you’re in a position to make generous gifts, you could potentially offset all of your taxable income for 2020.
- Likewise, cash gifts could be used to offset Roth IRA conversion income or capital gains realized upon the sale of a concentrated position or real estate.
- The CARES Act waived required minimum distributions (RMDs) in 2020—but qualified charitable distributions (QCDs) are still allowed for anyone age 70 ½ or older from a Traditional and Inherited Traditional IRA.
Determining the best way to give
Given the expanded options available, it’s important to determine the most suitable option for making charitable gifts for your specific circumstances.
You may want to consider one or more of the following:
- QCDs – distributions are tax-free and not included in adjusted gross income. Future RMDs may be smaller since distributions lower the year-end balance, which could result in future tax benefits if tax rates increase in later years
- Cash gifts to eligible charities – may be deductible up to $300 in addition to the standard deduction. This is a benefit to those who do not itemized deductions. You may offset up to 100% of adjusted gross income if you itemize your deductions, providing a current tax benefit.
- Stock gifts – provide a current tax benefit if you itemize your deductions and allow you to avoid taxation on the stock’s appreciation. Deductions for stock gifts are limited to 30% of adjusted gross income when contributing to public charities.
Please contact your financial advisor to further discuss your charitable options. As always, coordination with a tax advisor is essential to help provide the best outcome.
This article was written by a third party and provided to you by Marco Fragnito, Managing Principal and Robert Fragnito, Financial Advisor at MCF Capital Management, LLC in Laguna Hills, CA at 949 472 4579.
Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
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The opinions expressed here reflect the judgement of the author(s) as of this date and are subject to change without notice. Information presented here is for informational purposes only and does not intend to make an offer, solicitation, or recommendation for the sale or purchase of any product, security, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. The information being provided is strictly as a courtesy.