2020 is turning out to be quite different from what many of us had planned on back in January.  Not only are there changes in our day to day life, there are changes that could impact your financial life and what you had originally planned on doing this year.  One of those changes relates to charitable gifting.

New Deduction

Since the Tax Cuts and Jobs Act in 2018, many people are utilizing the standard deduction and are no longer itemizing deductions, including charitable donations.  However, as part of the CARES Act, there is an above-the-line adjustment to income allowed this year for people who take the standard deduction.  That means that even if you take the standard deduction, an extra $300 is allowed as an adjustment to reduce your taxable income. 

This charitable donation must be a cash (vs non-cash) donation to a qualified charitable organization.  Donor advised funds do not qualify for this deduction.

New Limits

Another item included in the CARES Act is the limit allowed for deductions of charitable donations.  Previously, individuals could only deduct up to 60% of their adjusted gross income for charitable donations.  This limit has been increased to 100% of their 2020 adjusted gross income.  However, the charitable donation only qualifies for this increase if it is made to a public charity.  The 60% rule still applies to private charities.  There is also no increase for donor advised funds.

Qualified Charitable Distributions

As you are probably already aware, required minimum distributions are not required in 2020.  Even though the distributions are not required, you can still take a qualified charitable distribution from your IRA.  This only applies if you were of the age to take a required minimum distribution in 2020.  Depending on your particular tax situation and how much you want to donate, this may still be a good option for you.

Qualified Charitable Distributions are when you direct your IRA distribution to be paid directly to the charity.  By doing so, you are not taxed on the distribution.  Therefore, you do not need to itemize your deductions in order to reduce your income tax using this method. 

As of now, these changes are only effective for the 2020 calendar year.  No one knows what the future holds and if these changes will be extended further.  Check back for any additional updates or contact our office with any questions.