Changes to Charitable Giving Rules Under the CARES Act and Some Tax Planning Ideas for 2020 Charitable Gifts

The Pacific Northwest is home to thriving businesses, fast-growing companies, and some of the world's leading nonprofit organizations. Our region has always been a leader in philanthropic giving, and new tax incentives under the CARES Act will go a long way in helping to rebuild communities.

The CARES Act, signed into law last March, offers significant incentives for families that are charitably inclined to help support the causes they care about while also gaining significant and meaningful tax savings. Summarized below are some changes for charitable gifting under the CARES Act, along with some tax planning ideas for 2020 charitable gifts.

NEW LIMITS ON CASH DONATIONS TO PUBLIC CHARITIES.

* For 2020, individuals may deduct up to 100% of their gross income for cash donations to public charities (up from 60%). One caveat as that these donations only apply to qualified public charities and not donor-advised funds or private foundations.

* For businesses, the CARES Act increases the deductible limit for cash donations made by C-Corporations to 25% of taxable income (up from 10%).

* Taxpayers who don't itemize for 2020 will be able to claim a deduction from gross income for up to $300 in cash donations to public charities.

* Donations in excess of these limits will carry over to the next five tax years, with limits reverting to the 60%/10% limit in 2021 and future years.

NO CHARGE FOR STOCK DONATIONS OR GIFTS TO DONOR-ADVISED FUNDS/PRIVATE FOUNDATIONS. There was no change in the CARES Act for the deductible gift limits of 60% for cash donations to donor-advised funds (30% for appreciated stock) and 30% for cash gifts to private foundations (20% for appreciated stock gifts). Donations to donor-advised funds and private foundations, however, still play an important role in effective income tax planning, especially when considering very large gifts and gifts of highly appreciated stock.

3 PLANNING IDEAS FOR 2020 CHARITABLE GIFTS. Charitable donations are best for income tax planning in high-income high tax bracket years and pair nicely with low-basis highly appreciated stock gifts, retirement years, and Roth conversions.

* Pairing Charity with Roth Conversion - With cash donations being deductible up to 100% of gross income in 2020 to public charities, pairing a large cash donation (or stock) with a Roth conversion could be a compelling tax strategy. For example, a taxpayer with the goal of making a $500,000 cash donation, and expected 2020 gross income of $250,000 could also make a $250,000 Roth conversion at little or no additional tax cost, achieving both charitable goals and allowing more retirement assets to grow tax free in a Roth.

* Low Basis Stock - Gifts of appreciated stock or real estate also have the double tax benefit of not having to pay capital gains tax on the appreciated value, while getting a full deduction for the fair-market-value of the appreciated gift.

* QCD from IRAs - Qualified charitable distribution under the CARES Act did not change and taxpayers over age 70 1/2 are still able to contribute up to $100,000 annually from their IRA.

* Required Minimum Distributions (RMDs) tax-free to public charities - Donors wanting go over the $100,000 annual limit could also consider cash gifts under the CARES Act of up to 100% of gross income for cash donations, further sheltering tax on IRA distributions that go to charity. For taxpayers that do not need to take 2020 RMDs, consideration should also be given to the option to suspend 2020 RMDs and make charitable donations from personal funds.

Apart from the tax savings, giving back to our communities not only makes a difference in the lives of others but also enhances our own well-being, with generous people being happier, healthier, and living with a greater sense of purposes. We are happy to work with you, alongside your wealth manger or financial planner, to determine your gifting capacity, plan for large charitable gifts, and implement long-term philanthropic and estate plans that fit your family's goals.

Whether you are donating your time, expertise, or wealth, we are here to help! Give us a call at 253.858.5434. We represent clients throughout Washington and Idaho and are available to meet in person (with appropriate social distancing protocols in place), by phone, or via video conference.