The RAF has some good news for those who are considering their charitable giving prior to year end; and those with IRAs or workplace retirement plans.
In response to the widespread financial setbacks the pandemic has caused, Congress modified two tax laws to help ease taxes, and give investors more time to take Required Minimum Distributions, (RMDs).
The Coronavirus Aid, Relief and Economic Security Act, (CARES Act) is intended to ease tax burdens. This Act allows taxpayers to make charitable contributions “Above the Line” where it has the most benefit to your tax obligation. Typically, charitable contributions are deductions only if you itemize and don’t take the simpler standard deduction. “Taxpayers can take this universal deduction no matter whether they itemize or take the standard deduction on their taxes,” according to Chad Chubb’s report in the August 23, Kiplinger Letter. Taxpayers may deduct $300 for contributions to qualified 501(c)3 charities, (and only $300 for those filing jointly.)
Chubb further explains, “Because the CARES Act deduction is a universal above-the-line deduction, you can list your contribution as an adjustment to income on your taxes. In short, with the CARES Act, if you donate up to $300 in cash to a qualified organization, your adjusted gross income will be reduced up to $300.” This new provision is intended to encourage more people to be charitable while enduring financial challenges.“This means you can now take the contribution amount off the top of income,” RAF President Bill McGlynn said, “so you can either help the RAF with its mission to preserve airstrips, or get taxed on it and pay Uncle Sam.”
The CARES Act includes another change for those who itemize. For 2020, it boosted the deduction for charitable giving from 60% to 100% of Adjusted Gross Income. “if your AGI is $250,000, you can deduct $250,000 in charitable contributions,” according to Chubb, adding, “While the ultimate goal of the universal deduction is to help smaller organizations, this extension for deductions could be an additional incentive for wealthy donors to continue giving this year.”
The CARES Act also boosted corporate giving, from 10% of taxable income to 25%. Donations in excess of that can be carried forward for five years.
The Kiplinger Letter also reported that the “Setting Every Community up for Retirement Enhancement” or SECURE Act modified rules for RMDs for 2020. “You don’t need to take one, for instance. And if you already have, you can probably undo it,” according to Roger Young’s June 29 report.
The SECURE Act had bumped the starting age for RMDs to 72 from 70½ as of January 1, 2020; but when Congress subsequently passed the CARES Act, it completely waived RMDs for the 2020 calendar year.
Here’s how the Kiplinger Letter answers the question: Do qualified charitable distributions make sense in a year without RMDs?
With a qualified charitable distribution (QCD), those age 70½ or older can distribute up to $100,000 directly from a traditional IRA to a qualified charity each year. QCDs can count toward your RMD and won’t be included in your taxable income. In this case, though, they can’t be counted as itemized deductions.
Ordinarily, that’s a nice strategy for charitably minded people, especially for those who don’t normally itemize deductions. In 2020, with RMDs waived, you could still execute a QCD. However, your taxable income wouldn’t be any lower than if you had just opted not to take a distribution. A QCD this year would, however, reduce your account balance, and therefore future RMDs for you and your beneficiaries.
The RAF suggests you consult a qualified tax advisor to help you make decisions.
Submitted November 30, 2020