How the bill might change your philanthropy strategy
For clients engaged in philanthropy or interested in future charitable giving, some changes made during the last year could affect your strategy.
To help mitigate the impact of the COVID-19 pandemic on businesses, workers and consumers, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Along with provisions allowing access to retirement savings and suspension of required minimum distributions for IRAs, the bill provides increased tax incentives for charitable gifts from both individuals and corporations, as well as larger gift limits. Those changes are designed to encourage philanthropy during a time of great need for many Americans. Though most philanthropic clients will engage in charitable giving regardless of the tax implications simply because of their commitment to a cause, there’s still good reason to be familiar with the new rules. Here’s how they might impact your plans.
A new charitable deduction for individual taxpayers who do not itemize is one of the more significant changes made by the CARES Act. The bill allows them to claim an above-the-line deduction of up to $300 for cash gifts made to public charities. This deduction is expected to stay in place beyond 2020.
Another change is an increase to available deductions on charitable contributions. Individuals can now choose to deduct up to 100 percent of their adjusted gross income (AGI), up from 60 percent prior to the CARES Act. Corporate donors can deduct up to 25 percent of taxable income, an increase from the previous limit of 10 percent. Note that these changes only apply to qualified charitable contributions, which are limited to cash donations to public charities. Property, assets and other donations do not qualify.
Since the start of the pandemic, there’s been a clear call for greater charitable contributions and an uptick in giving, whether related to need, the new incentives or both. Some of our clients have had charities reach out to them, more this year than they have in the past. Clients have also been more generous this year with their giving. Even though their account might be down, they realize the need for charitable contributions. Many clients are trying to direct their donations to food banks and community nonprofits that are offering assistance to people in this time of greater need.
Giving from Your IRA
One strategy I am seeing more from clients is contributing from their IRAs. If you’re a charitable person, it makes sense to give out of your IRA, so you save on taxes. If you are 59 1/2 (the age at which the 10 percent penalty on early IRA withdrawals expires) or older and not dependent on your existing retirement funds, you can make a charitable donation in cash from your IRA and offset it by taking a deduction of up to 100 percent of your AGI for
the year. Be aware that if you are 70 1/2 or older, you can already make a charitable donation of up to $100,000 from your IRA, which is not federally taxable or state taxable in Minnesota and Wisconsin.
Beyond the Incentives
Though they do not qualify for incentives under the CARES Act, gifts of appreciated stock are now more widely accepted among charities, creating another avenue to give during the pandemic. The creation of or donations to independent foundations—also not part of CARES Act changes—are also common and still important.
Trust Point offers a wide range of options for clients to get involved in giving back to their communities or to causes that are important to them. Unsure of where to start? Trust Point can help with that, too. If you come to us and say you want to give, you can give us an idea of what you’re looking for and we can go out into the community, look at our relationships, and find the right fit.