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CARES Act Provisions: The Good News for Charitable Giving

We have some good news for charitable donors and nonprofit organizations alike. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27. It’s a $2 trillion stimulus package – the largest in U.S. history – and its provisions include a wide range of financial assistance designed to ease many of the financial burdens caused by the pandemic. Among them there are several provisions designed to help stimulate charitable giving right now.

At Truman Heartland Community Foundation, we believe that charitable giving in 2020 is likely to be just as unprecedented as the selfless acts of kindness and courage we’ve seen in the past few weeks from our healthcare professionals, our first responders and the friends, neighbors and families of those who are suffering most. As we look after each other in the coming weeks, we want to make sure that all our donors and their advisors understand these new rules and tax incentives as they plan to have the most impact with their charitable giving this year.

Here are a few elements of the new law to keep in mind:

The law allows an above-the-line income tax charitable deduction of $300, or $600 for married filing jointly. This is new. We have never had a universal charitable deduction before. It applies only to gifts of cash. It’s also a permanent provision which applies to gifts made in 2020 and each year thereafter. While on its face this isn’t a large tax break, the fact that it would reduce adjusted gross income could lead to a reduction in the applicable tax rate and much larger savings. A non-itemizing individual can now deduct up to $300 in cash charitable contributions in addition to claiming the standard deduction of $12,400. For married filing jointly the deduction is $600 with a $24,800 standard deduction.

For individuals who itemize in 2020, the cap for their charitable deduction on gifts of cash increased from 60% of adjusted gross income (AGI) to 100% of AGI. A donor who uses all of her available deduction for qualified gifts would pay no federal income tax in 2020! She could also elect to carry over any unused portion for up to five years. This provision only applies for the 2020 tax year, and this makes the next nine months an unprecedented time for donors to make that gift-of-a-lifetime, endow a scholarship or create another fund that relates to their unique charitable interests. If you have been considering making your legacy a reality, then 2020 presents an ideal opportunity to make it happen with unprecedented tax savings.

For corporations, the cap on their charitable deduction for gifts of cash increased from 10% of the corporation’s taxable income to 25%. This provision only applies for the 2020 tax year as well, and it sets up a one-time opportunity over the next nine months to have a special impact on our community at this time of great need and suffering. The incentives for our corporate community to partner with nonprofit organizations and have an immediate impact on the lives of others has never been better.

These new rules allow taxpayers to take a larger deduction for charitable contributions than would normally be available. However, it is important to note that all three of them only relate to cash contributions as opposed to donations of stock, real estate or any other non-cash items. Additionally, the increased limits for individuals and corporations are limited to contributions made to public charities and, therefore, exclude private grant making foundations. Cash contributions to Donor Advised Funds were also excluded from the increased percentage and remain at the 60% of AGI cap.

Additionally, the Required Minimum Distributions (RMD) from traditional IRAs are waived for 2020. This means the 50% excise tax will not apply to someone who chooses not to take their RMD this year. However, if you turned 70 ½ before January 1, 2020, and you have IRAs which aren’t needed to provide for your support in retirement, then your IRA is still one of the most tax-efficient ways to make charitable gifts to support the causes you care about, as well as the nonprofits that are responding to this crisis. While you no longer have the RMD consideration, direct contributions from your IRA to charities will be considered Qualified Charitable Distributions and will not be taxed.

Truman Heartland Community Foundation is continually assessing community needs during this challenging time. We launched a new COVID-19 section on our website with a list of organizations that are on the frontlines and are ramping up their efforts to battle the growing needs within our community. We encourage donors to work directly with these nonprofits to ensure that donations will have an immediate impact on the lives of those who need the most help.

Thank you for your generosity. We wish you the very best during this challenging time. Please call Cole Eason at 816.912.4182 if you have any questions about these CARES Act provisions or if you would like to partner with us in your charitable giving.

 



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