In the wake of all the news surrounding the COVID-19 Pandemic, passage of the CARES Act came as a breath of fresh air to many Americans – for many different reasons. Provisions designed to stimulate charitable giving were particularly welcome in the nonprofit world. Following is a summary of the elements of the bill most relevant to those interested in making charitable gifts.
Incentives for Donors Who Itemize
Donors who itemize may now deduct cash gifts up to 100% of their AGI – Adjusted Gross Income. This represents an increase from the 60% limit authorized in previous legislation. The IRS has not issued guidance for donors who give both cash and appreciated property in 2020. Consult your tax advisor for the implications of this provision on your own situation.
Incentives for Donors Who Don’t Itemize Charitable Deductions
Non-itemizers may now take a charitable tax deduction of up to $300 for cash donations, on top of the standard deduction. This provision is for the year 2020, but may continue in the years ahead. Consult your tax advisor for guidance on this provision.
In the case of both the itemizer and non-itemizer, the deductions only apply with donations to qualified public charities. Gifts to donor advised funds and supporting organizations do not fall into that category.
Benefits to IRA Owners
For the year 2020, IRA owners are exempt from taking Required Minimum Distributions (RMD) from their accounts. However, persons who are 70 ½ or older may still make a charitable distribution from an IRA directly to charity of up to $100,000.
Normally, if you took money out of an employer-sponsored retirement plan or IRA before age 59, you would be hit with taxes plus a 10% tax penalty on that amount. The CARES Act waives the early distribution penalty on up to $100,000 of distributions in 2020 for “affected individuals.” You must still pay income taxes on any amounts withdrawn, but the new law allows you to pay the taxes over three years. Additionally, if you recontribute the amount withdrawn back into your plan within three years, that amount will not be taxed.
To qualify for this penalty-free hardship withdrawal, you, your spouse or a dependent must have been diagnosed with coronavirus (COVID-19) or have experienced adverse financial consequences as a result of COVID-19. This includes being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to a lack of child care due to COVID-19 or closing or reducing hours of a business you owned or operated if you had COVID-19.
Normally, you can borrow only up to $50,000 or 50% of your vested account balance, whichever is less. The CARES Act doubles that amount – up to $100,000 against the amount you have saved in your plan.
Borrowers typically have five years to repay a loan or the amount will be treated as a distribution and taxed. But if you leave or lose your job, you may be required to pay the balance back early, you could owe taxes and you may face an early-withdrawal penalty.
This summary is for information and should not be construed as professional advice. As always, it is best for you to consult with your tax advisor to gain a full understanding of the effect of these provisions on your individual tax situation.
Donation & Giving Questions?
Please contact our Development Team at (503) 226-3423