In March 2020, Congress and the president enacted broad-reaching financial legislation designed to deal with the economic crisis created by the novel coronavirus. The CARES Act, which was passed in order to provide COVID-19 relief, also included incentives for charitable giving. For the 2020 tax year only, there are additional tax benefits that we would like to make you aware of. If you are planning on making a gift to the U or any charity this year, please check out our presentation above to learn more about how to maximize these benefits.
About the presenters:
Jessica Nelson is the director of planned giving for the University of Utah. She earned a bachelor’s degree from Weber State University in 2008 and a JD degree from the Appalachian School of Law in 2011. She is a licensed attorney in Utah.
Ann Morse is the director of planned giving for University of Utah Health. She earned a bachelor’s degree from the U in 1998 and a JD degree from Pepperdine University School of Law in 2001. She is a licensed attorney in Utah and California.
Year-End Tax Strategies Under the CARES Act
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) of 2020 was signed into law on March 27, 2020. While the 340-page, $2.2 trillion response bill has many components, several provisions are key for year-end tax and giving strategies in 2020.
Charitable Deduction for Non-Itemizers
First, there is a new giving opportunity for individuals who do not itemize their taxes with a new above-the-line charitable deduction of up to $300. This deduction applies only to qualified cash contributions and does not apply to cash contributions made to donor advised funds or supporting organizations.
“Unlimited” Charitable Deduction for Itemizers
Second, individual taxpayers who do itemize deductions and contribute cash to a public charity like, the University of Utah, may deduct up to 100% of their adjusted gross income (“AGI”). Individual taxpayers can continue to carry forward any excess charitable contributions for five years.
No RMDs
Third, required minimum distributions (“RMDs”) are waived for individual retirement accounts, including inherited IRAs, 401(k) and 403(b) plans. Given the extreme volatility of the markets during the COVID-19 crisis, this respite can give individual retirement portfolios another year to recover.
QCDs Still Allowed
It is important to note that IRA qualified charitable distributions (“QCDs”) can still be made even though RMDs have been suspended. The minimum age for making a QCD from your IRA is still 70½, and the annual limit is still $100,000. It is also possible for those who desire to support their favorite causes in 2020 to take cash distributions from their IRAs and make deductible gifts in 2020, with no AGI limitation.
Increased charitable deduction limits for corporations
For 2020, the limit for cash contributions from corporations has been raised to 25%. The limitation on deductions for contributions of food inventory by any trade or business is also increased to 25% for 2020.
Potential Roth IRA Conversions
Finally, the savviest of 2020 donors may consider increasing their AGIs by converting a qualified retirement plan to a Roth IRA. This offers the opportunity for very charitable donors to get an even larger charitable contribution deduction in 2020 and pay no federal income tax on the Roth IRA conversion.
For more information about these tax strategies under the CARES Act, please contact Jessica Nelson, Director of Planned Giving, at jessica.nelson@utah.edu or (801) 585-5950.
Disclaimer: The information provided herein does not, and is not intended to, constitute personalized financial or legal advice. The contents of the article are for general informational purposes only, and should not be relied acted upon without specific professional legal or financial advice, based upon an individual’s situation.