Charitable donations are a great way to show your support for an organization and, at the same time, provide tax-saving opportunities. Not only does the charity benefit when an investor makes a gift, but the taxpayer may also be eligible to receive a tax deduction.
Earlier this year, the Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act, was signed into law. Among the provisions provided for in the Act is an incentive to encourage charitable giving. The provision is available for cash contributions and provides a benefit for both types of taxpayers: the itemizer and the non-itemizer.
- For taxpayers who do not itemize deductions: these taxpayers are permitted an above-the-line deduction for a cash contribution of up to $300. The goal is to help increase donations from those who otherwise may not choose to make a charitable contribution. This charitable giving benefit extends beyond the 2020 tax year.
- For taxpayers who itemize: these taxpayers can deduct up to 100% of their adjusted gross income (AGI) in cash contributions, raised from 60%. This charitable giving benefit applies to tax year 2020.
Other beneficial charitable donation options remain in place from previous years including:
- Qualified Charitable Distribution (QCD)
- A distribution that would normally be taxable from an IRA owner who is eligible to receive a required minimum distribution and is paid directly to the qualified charity. The distribution lowers the IRA owner’s adjusted gross income, effectively reducing his/her income taxes.
- Donor Advised Fund
- A donor can create an account and make a contribution of cash, securities or other appreciated assets. The donation is eligible for a current-year tax deduction for the gift.
- In-kind Stock Donation
- Consists of gifting highly appreciated securities directly to a charity. The charity can sell the securities and use the proceeds without having to pay tax on the gain. The donor generally receives a deduction for the fair market value.
The benefit of a charitable gift can be significant. In order to maximize your giving and potential tax saving opportunities it is important to plan carefully and consult with your financial, tax and legal professionals.
As always, we are available to discuss these and any other planning goals in your life.