The CARES Act, enacted on March 27, brought two new provisions that every taxpayer should know about.  One applies only to this year, but the other is ongoing. The new rules impact two groups of taxpayers:

  1. Those who typically give a few hundred dollars each year
  2. Those who want to make large contributions this year

Beginning this year, taxpayer can take a tax deduction for up to $300 of cash contributions to charitable organizations, even if they don’t itemize deductions. This means that every taxpayer can benefit from making qualified contributions this year. A lot of taxpayers did not itemize deductions in 2018 and 2019 due to the enormous increase in the standard deduction. Starting this year, those donors who make contributions can deduct up to $300 AND get the larger standard deduction. They must make their gift before year end in order to secure the deduction for 2020.

For those who are able and willing, they can totally eliminate their 2020 tax bill. This is because the CARES Act modified the limits on charitable contributions (previously the limits were 20%, 30% or 60% of adjusted gross income).  For 2020, and only 2020 unless it gets extended, taxpayers can deduct qualified charitable contributions up to 100% of adjusted gross income. Those gifts will likely be made from assets, rather than income, but it’s important to remember that they must be cash gifts directly to the charity.  In other words, the donor cannot contribute appreciated stock or make use of a donor advised fund to make the gift if the higher limit is to apply.

Many people who, in the past, have been reluctant to convert their Traditional IRAs to ROTH IRAs because the conversion is taxable, for 2020, they can now make the conversion tax-free by matching the amount with a qualified gift to their favorite charity. Talk about a win-win.

The CARES Act waived 2020 Required Minimum Distributions (RMD) from retirement plans. Qualified Charitable Distributions (QCD) can still be made up to the amount that would have been the RMD this year.

As you know, personal situations vary.  If you contemplate any of these moves, consult with a tax advisor before making any gift.

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Special thanks to Bill Crouch from BrightDot  for allowing us to use his content.