Your Church Giving and the Coronavirus Aid, Relief and Economic Security (CARES) Act:
Are you aware that in March when the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, there were some changes regarding charitable contributions?
New Deduction Available: Up to $300 per taxpayer ($600 for a married couple) in annual charitable contributions. This is available only to people who take the standard deduction and who do not itemize their deductions. It is an “above the line” adjustment to income that will reduce a donor’s adjusted gross income, and thereby reduce taxable income. A donation to a donor-advised fund does not qualify for this deduction.
New Charitable Deduction Limits: As part of the bill, individuals and corporations that itemize can deduct much greater amounts of their contributions. Individuals can elect to deduct donations up to 100% of their 2020 adjusted gross income (up from 60% previously). Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%. The old deduction rules apply to gifts to private foundations. The higher deduction doe does not apply to donations directly to a donor-advised fund.
Required Minimum Disbursement (RMD) Waived in 2020 for Most Donors: RMD for individuals over age 70½ are suspended until 2021. This includes distributions from defined benefit pension plans and 457 plans. The RMD is an attractive way for donors to make a significant charitable gift directly from their IRA to a charity through a qualified charitable contribution (QCD) while avoiding taxable income. The suspension of the RMD may dampen somewhat the incentive for a donor who makes a gift from their IRA to count toward that minimum. However, the tax benefit of the QCD remains.
The takeaway – donors directing a QCD to charity this year (up to $100,000 per individual) will still reduce their taxable IRA balance. This allows all taxpayers, itemizers, and non-itemizers alike, to direct gifts from their IRA to charities in a tax-efficient manner.
This information is not intended as legal or tax advice. For such advice, please consult an attorney or tax advisor. References to tax rates include only federal taxes only and are subject to change.
Together through Christ,
Director of Stewardship