CARES Act Impact on Philanthropy
The recently enacted CARES act includes several provisions that makes most individual taxpayers eligible for significant tax benefits for charitable contributions made this year (2020). Two of these benefits include:
- $300 Above-the-Line Charitable Deduction – Individuals who do not itemize their deductions will be eligible to claim up to $300 of charitable deductions in 2020, on top of the standard deduction.
- Modified Limitations on Cash Charitable Contributions – For 2020, the 60% AGI limitation on cash contributions to 501(c)(3) organizations like Friends’ Central is suspended for 2020. This does not extend to cover cash contributions to private foundations and Donor Advised Funds.
There are also significant changes with regards to 2020 withdrawals from retirement plans.
- Waiver of Retirement-Plan Withdrawal Penalties – If you are under the age of 59 ½ and withdraw money from your retirement plan to cover expenses incurred by you or a family member related to treatment of the coronavirus, the 10% tax penalty will not apply, taxation of the distribution can be spread over three years, and you can add the amount you withdraw to the fund later without regard to contribution limits.
Though this does not affect charities in the near term, it does allow retirement funds to be used for an immediate need while enabling retirement accounts to recover and be used in the future for family security or charitable purposes.
- Required Minimum Distributions Waived – Under the SECURE Act that was enacted this past December, IRA owners and certain participants in qualified retirement plans are required to take distributions beginning at the age of 72. The mandatory beginning age had been 70 ½. Under the CARES Act, for the year 2020 there will be no mandatory distributions—no matter the age of the account owner.
Many people have seen a precipitous drop in the balances of their retirement funds, and this provision allows those accounts to recover before forcing the liquidation of possibly depressed securities they may hold in order to make required distributions.
The minimum age for making a tax-free transfer from an IRA to a charity remains at 70 ½, and the annual limit for such transfers remains at $100,000. However, because of the modification of deduction limits in 2020, one could exceed this limit.
If you have questions or might be contemplating a planned or estate gift in support of the FCS mission, or about any gift plan that pays income to you, please contact Colette Kleitz, Chief Development Officer, at firstname.lastname@example.org, or 610-645-5076.
Chief Development Officer