In response to the COVID-19 crisis, the Coronavirus Aid, Relief, and Economic Security Act (CARES) was signed into law by the President on March 27, 2020. It has many significant provisions that affect individuals, charities, and businesses. The following are some of the important points that may affect Wheaton supporters and their charitable giving plans in 2020.
Charitable Deduction for Non-Itemizers. Many people do not itemize their income tax deductions because of recent significant increases in the standard deduction. CARES provides non-itemizers with an “above the line” deduction for charitable cash contributions of $300. This means taxpayers who do not itemize their deductions can still deduct up to $300. This non-itemizer’s deduction is a permanent addition to the law. It provides Wheaton supporters who otherwise do not itemize their deductions with a great opportunity to reduce the cost of their charitable contributions or to increase their giving because of the added tax benefit.
Suspension of Limitation on Cash Gifts. Taxpayers must normally limit their current charitable deduction for cash gifts to no more than 60% of their adjusted gross income. For 2020 only, individuals making cash gifts to a public charity may elect to increase this limit to 100% of their adjusted gross income. This is an opportunity for those planning major cash gifts to eliminate or greatly reduce income taxes in 2020. Unfortunately, this expanded limitation does not apply to gifts to donor advised funds or supporting organizations. Deductions for gifts of appreciated securities will still be subject to their normal limitation of 30% of adjusted gross income. For 2020 only, the limitation on corporate cash gifts has been increased from 10% to 25% of taxable income.
Temporary Waiver of Required Minimum Distributions (RMDs). For 2020 only, required minimum distributions from retirement accounts are waived. Congress intended to give a break to taxpayers who would otherwise have to withdraw RMDs from retirement accounts, which have been diminished because of recent significant investment declines. Wheaton supporters over age 70 ½ may still find it prudent to make tax-free qualified charitable distributions from their individual retirement accounts. Such contributions are limited to $100,000 per individual per year.
The following are other gifts which may be of interest in the current environment:
- The CARES Act, along with the current volatile investment market, creates an environment where it may make sense to consider a charitable gift annuity that provides a fixed, dependable, partially tax-free annual payment and an immediate charitable income tax deduction.
- Low interest rates and low IRS discount rates have created a rare opportunity for certain planned gift techniques. For those who have large estates and thus have federal or state estate tax planning issues, now is the time to consider a charitable lead trust, which makes a significant charitable gift and provides a tax-efficient method to pass significant assets to family members.
If you have any questions regarding the above or any other charitable giving question, please feel free to call Dave Teune (630.752.5333) or Lindsay Jurgensen (630.752.7454). Of course, consult your tax advisor before taking any action based on the above information.