Most donors give from the heart. They support organizations they care about deeply and whose missions make a difference in their lives and the lives of others. Very few donors are looking to have their names on a building or for a return on investment beyond the wonderful feeling that comes from helping others.
Tax law changes in 2017 took away another motivation to give—a tax deduction for your charitable contributions. For those who still itemize their taxes in 2018 and 2019, the tax incentives remained. But for many of us, the tax incentive to give charitable donations vanished. The good news: the tax incentives for giving are back (for most us)!
For many donors, the tax incentive to make a charitable gift might add to the good feelings. The Coronavirus Aid Relief and Economic Security (CARES) Act, which became law at the end of March, includes new benefits for all taxpayers who make charitable contributions in 2020.
New Charitable Deduction Available
If you take the standard deduction on your 2020 tax return (currently $12,400 for individuals and $24,800 for married couples filing jointly), the CARES Act created a brand new "above-the-line" deduction of up to $300 for cash donations to charity that you make this year. Normally, you would have to itemize your deductions to get a tax break for charitable donations. Now it's the other way around—if you itemize, you can't take this new $300 deduction. But dear itemizers, don’t despair.
Increased Deduction Limits
For itemizers, you have always been able to claim a deduction for your charitable donations. However, the amount you can deduct for cash contributions is generally limited to 60% of your adjusted gross income (AGI). Any cash donations over that amount can be carried over for up to five years and deducted later.
The CARES Act lifts the 60% of AGI limit for cash donations made in 2020 (although there's still a 100% of AGI limit on all charitable contributions). That means itemizers can deduct more of their charitable cash contributions this year.
Exceptions
Donations to donor advised funds and 509(a)(3) charitable organizations (commonly known as sponsoring organizations) are not deductible. If you set up a donor advised fund to help take advantage of the tax law changes in 2018, don’t worry. Your money is still being held for you to disperse at your discretion. But if you want a tax deduction this year, you’ll have to use other assets.
Required Minimum Distributions Waived
The CARES Act temporarily waives required minimum distributions from most qualified retirement plans, including IRAs, allowing time for these funds to recover from market fluctuations. However, individuals age 70 ½ and older can continue to make tax-free gifts up to $100,000 annually from their eligible IRAs through qualified charitable distributions directly to the charity of their choice.
During these challenging times, you may be feeling uncertain about whether or not to give, how much you can give, or where to direct your philanthropic support. The Island Institute has directed many inquiries from our own members to coastal and island food banks, shelters, and healthcare providers. We also welcome your continued or renewed support of our mission and priorities for the island and coastal communities of Maine.
We are grateful for the continued support from those who love the islands and the coast of Maine during this unprecedented time. We’re also grateful for the changes to the tax deductibility of your gift, thanks to the new CARES Act. To learn more about our membership and giving options, please visit giving.islandinstitute.org or email sbernier@islandinstitute.org.
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