Advisor's Corner

Advisor’s Corner: CARES Act and Charitable Giving

Charitable Giving in 2020

The CARES Act and Other Tax-Smart Strategies

As you contemplate how COVID19 is affecting our community and think about the nonprofits serving critical needs, you may be wondering how you can support those organizations close to your heart now and in the future. The Community Foundation is here to guide you with smart giving options, assist with your planned gift and estate planning needs, and help your current contributions have the deepest impact.

CARES ACT CHARITABLE GIVING INCENTIVES

While the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides significant funding for businesses, hospitals and schools, Congress also wanted to stimulate gifts to support the important work of nonprofits by offering:

  1. A universal deduction of up to $300—
    Taxpayers who do not itemize can receive an “above-the-line” deduction for cash contributions made to charities (excluding donor-advised funds and supporting organizations) in the 2020 tax year. This is limited to each “tax-filing unit” so married couples who file jointly can only deduct $300. All taxpayers are eligible, even people who use the standard deduction. Make a gift directly to charities of choice, or help support an array of nonprofits through the Arkansas COVID19 Relief Fund.
  2. An increased adjusted gross income (AGI) deduction limit—For those who itemize, the AGI limit is increased from 60% to 100% for cash contributions to charities (excluding donor-advised funds and supporting organizations) made in 2020, with a 5-year carryforward for contributions that exceed 100% of AGI. For corporations, the limit on deductions for contributions, ordinarily 10 percent of AGI, is elevated to 25 percent for 2020.

OTHER TAX-SMART STRATEGIES

  1. Utilize an IRA Qualified Charitable Distribution (QCD) to make charitable donations. A QCD allows traditional IRA account owners age 70 1/2+ to direct up to $100,000 each year to qualified charities without treating the distribution as taxable income. This is particularly smart for those who take the standard deduction and would miss out on writing off charitable contributions. While QCDs normally help offset the tax consequences of Required Minimum Distributions (RMDs), the CARES Act waives RMDs for most IRAs in 2020. However, making a QCD this year still allows itemizers and non-itemizers alike to donate in a tax efficient manner. Learn more about IRA QCDs.
  2. Establish a Donor-Directed Fund to receive immediate tax benefits and support charities of choice over time. Community Foundation funds provide a simple, efficient giving solution, allowing the opportunity to take immediate action or create a long-term difference. The charitable gift deductions in the CARES Act exclude donor-advised funds, but donors can direct gifts through other types of Community Foundation funds (like a designated fund) for the maximum tax benefit. Learn more about Community Foundation fund options.
  3. Stack multiple years of charitable contributions in one calendar year. In order to exceed the standard deduction in a given year, donors can “bunch” donations to receive maximum tax benefits. And by using a Community Foundation charitable fund, gifts are tax-deductible, the assets can be invested, and charitable dollars can grow tax-free. Donors can use those assets to provide ongoing support for their favorite nonprofits, even in the years they claim the standard deduction.
  4. Translate earnings into community impact by donating an appreciated asset. Instead of selling, donors receive a tax deduction based on the asset’s market value and avoid capital gains taxes. The gift can then be used to benefit the causes and organizations they care about most. Learn more about all the assets you can use for charitable giving.

Arkansas Community Foundation makes the giving process simple, flexible and efficient for individuals, families and corporations. Contact Community Foundation staff to assist you and your professional advisers with a customized giving plan that maximizes your charitable investments.

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