2020 will go down in history as a monumental period in the 21st century. We are living through a global pandemic, significant market volatility, and growing social concern and unrest. Will this be defined as another period of enlightenment?

Despite these uncertain times, we still must pay taxes and plan for the future. As clients look for last-minute tax-saving strategies in 2020, one area that should be considered involves the changes to the charitable giving rules made by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. Even taxpayers who do not itemize can benefit in 2020 from a charitable deduction.

People give to charities for many reasons – to honor a loved one, to help a cause they feel passionately about, or simply to do something good. However, charitable giving also has significant tax implications that can lower income taxes during your life as well as estate taxes at your death.

New tax incentives give donors who plan to take the standard deduction the option to claim an above-the-line deduction of up to $300 for cash contributions to operating charities. The CARES Act also gives donors who will itemize deductions an option to elect a 100% of AGI deduction limit for cash donations. Important note to remember – the cash donations must be made directly to operating charities and cannot go to donor-advised funds, supporting organizations, or private foundations.

Anticipating significant changes to the tax code by the new administration, you might consider making your charitable giving both tax-smart and high-impact.

Give appreciated non-cash assets

For those who itemize deductions, appreciated non-cash assets, such as stocks, ETFs and mutual funds held more than one year, may offer an additional tax benefit in comparison to cash donations. Beyond claiming a deduction for the fair market value of an asset, donors can potentially eliminate the capital gains tax they would incur if they sold the asset and donated the cash proceeds.

Give up to and beyond existing limits and carry over the excess deduction

Donors who wish to itemize deductions for non-cash assets, cash, or a combination of both may choose to give beyond the deduction limit and carry over the excess deduction for up to five years. Those deductions in the future years might be more valuable if (or shall we say when) income tax rates go up.

Bunch contributions

Some donors may find that the total of their itemized deductions is just below the level of the standard deduction. They may find it beneficial to bunch 2020 and 2021 charitable contributions into one year (2020), itemize their deductions on 2020 taxes, and take the standard deduction on 2021 taxes. In addition to achieving a large charitable impact in 2020, this strategy could produce a larger two-year deduction than two separate years of itemized charitable deductions, depending on income level, tax filing status, and giving amounts each year.

Make charitable distributions from your IRA accounts

Even though required minimum distributions from IRAs were suspended for 2020, an eligible individual may make direct charitable donations from his or her IRA in 2020, and the direct charitable distribution of up to a maximum of $100,000 will not be included in income (the charitable donation will not be deductible). This rule applies regardless of whether the taxpayer itemizes. Though there is not a direct income tax savings in 2020 for making qualified charitable distributions, reducing the value of the IRA through charitable gifting may be a benefit to an overall estate plan for those with taxable estates who are also charitably minded.

Incorporate charitable giving in your estate plan by naming a charity as the beneficiary of your retirement account

Any individuals named as beneficiaries of the retirement account must pay income taxes at ordinary rates on any distributions, they receive from the retirement account. Therefore, the best income tax result is to benefit charity from the retirement account and your loved ones from other assets that will not be subject to income tax when they receive it.

In addition, due to the recent changes under the SECURE act, most IRA beneficiaries will now need to withdraw all funds from the retirement account within 10 years of the account holder’s death. This change in the law limits the ability of most individuals (other than a spouse, minor children or disabled or chronically ill individuals) to stretch out retirement account distributions; it limits the ability to continue investments with deferred taxes; it compresses income tax payments over a much shorter period of time.

These are just a few examples of how you can combine good deeds while benefiting from tax savings. We encourage everyone to speak to your trusted tax advisor who can assist you with your individual tax planning.

Wishing you happy and safe holidays from all of us at CPA Solutions!