The coronavirus pandemic exacerbated need and diminished nonprofit resources. To help address this disparity, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, included provisions and temporary changes to incentive individuals to donate to 501(c)(3) organizations. As individuals consider year-end giving plans, here is a quick refresher on the new CARES Act benefits as well as alternative options and best practices.
CARES Act Changes to Charitable Deduction
The CARES Act significantly changes the popular charitable contribution deduction for the 2020 tax year only in the following ways:
- Individuals who itemize may deduct charitable contributions to public charities up to 100 percent of adjusted gross income (AGI), up from the standard 60 percent limit. Please note, individuals cannot donate to a private foundation or to a donor advised fund to qualify for the 100 percent AGI limitation.
- Individuals who do not itemize their deductions are allowed a $300 charitable contribution deduction for cash contributions to public charities
Noncash contributions remain limited to 50 percent of AGI, and capital gain property donations, like appreciated stock, remains capped at 30 percent of AGI. This deduction will be reported as an itemized deduction.
At the time of this writing, the IRS guidance is still unclear about whether taxpayers who file jointly may take a $600 deduction.
Find Your Optimal Charitable Giving Strategy
The charitable deduction is a flexible and beneficial way for individuals to support causes they care about and reap tax benefits. To maximize these benefits, it is critical that taxpayers optimize the timing and methods of their donation. The four most common tax-advantaged donation strategies include:
- Bunching donations
- Donor Advised Funds
- Donation of appreciated assets
- Qualified Charitable Distribution from an IRA
For a noncash option, many organizations promote vehicle donation as a way to benefit their programs and services. Learn more about this strategy from the IRS.
Each of these strategies has different criteria and considerations, so be sure to discuss the best options for you with your RKL advisor.
Charitable Giving Best Practices
To maximize philanthropic impact and tax benefits, it is important for donors to make sure they are supporting legitimate causes and properly documenting donations. Below is a snapshot of best practices (read more in-depth guidance here):
- Verify the organization is qualified and tax-exempt (via IRS Exempt Organization Select Check or state government sites)
- Maintain the required documentation to substantiate tax deductions (different requirements for cash and noncash donations)
Contact your RKL advisor or reach out using the form below to discuss any of giving strategies described here or with any questions about the tax benefits of charitable contributions.