CARES Act – Charitable Contributions
What changed: The CARES Act includes three major changes to charitable giving.
The first change relates back to RMD suspensions for 2020. You can still do a qualified charitable distribution (QCD) of up to $100,000 from your IRA to a qualified charity in 2020. The direct distribution to a charity would not show up as taxable income to the individual. However, since RMDs are suspended for 2020, the distribution won’t offset any RMDs.
Second, the CARES Act created a new above-the-line deduction of $300 for charitable contributions.
And third, the CARES Act allows for cash gifts to most public charities of up to 100% of adjusted gross income in 2020. This is normally limited to 60% of AGI.
The impact: Many retirees might choose to forgo giving via a QCD in 2020 if they wanted it to offset RMDs. Instead, you might decide to wait until 2021 to do a QCD when it will offset RMDs.
The new above-the-line $300 deduction for cash gifts cannot be given to donor-advised funds (DAFs) or supporting organizations (SOs). However, the new deduction allows those who do not itemize their tax deductions to benefit from a tax deduction of up to $300 per individual from donating cash to a charity. Less than 10% of Americans are expected to itemize in 2020, so this could benefit many givers.
Lastly, if you have a large taxable event in 2020, like the sale of a business, it could make sense to take advantage of the one-time higher AGI limit for cash gifts. While it is not advisable to do a 100% AGI gift for most people, you can plan on making a large gift to charity in the future to leverage the new 2020 limit.