2020 Year-end Charitable Giving Tax Incentives for Individuals

Summary of Keypoints

• Individual charitable giving may yield greater tax benefits than corporate giving, since the top individual marginal tax rate (37%) exceeds the reduced corporate tax rate (21%) under the 2019 tax reform.
• The CARES Act introduced a new $300 above-the-line charitable deduction for 2020, allowing individuals who take the standard deduction to deduct up to $300 in cash-only contributions to qualified organizations.
• For 2020, the CARES Act temporarily increased the cash contribution deduction limit to 100% of Adjusted Gross Income (AGI), suspending the prior 60% AGI limitation and enabling significantly larger deductible gifts.
• Expanded rules create new opportunities for IRA-based charitable giving, allowing taxpayers over age 59½ to donate amounts exceeding $100,000 from IRAs, with taxable income potentially fully offset by charitable deductions up to 100% of AGI.
• Further tax-related relief may emerge, as Congress continues debating additional stimulus legislation that could affect individual and business tax planning beyond 2020.

Given that the 2019 tax reform act reduced the domestic corporate tax rate to 21%, far less than the top individual marginal tax rate of 37%, charitable giving opportunities at the individual level may provide potentially more tax savings for individual taxpayers than for corporate taxpayers.  Noteworthy individual tax-saving opportunities for year-end charitable giving include:

• The Tax Cut and Jobs Act of 2017 (TCJA) increased the standard deduction dramatically, thus reducing the impact of charitable giving as a component of itemized deductions. However, the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) created a stand-alone charitable deduction of up to $300 for cash-only contributions made in 2020 to qualifying religious, charitable, educational, scientific, or literary organizations. This additional deduction may be taken by individuals who take the standard deduction on their federal income tax return.
• The CARES Act also temporarily suspends the cash contribution limit of 60% of a taxpayer’s Adjusted Gross Income (AGI) to allow a taxpayer to deduct, in 2020, cash charitable contributions in an amount equal to or less than 100% of the taxpayer’s AGI. This change benefits especially taxpayers who want to make charitable contributions from their IRA in an amount much greater than in past years since, under previous law, a taxpayer over 70½ years old was able to only donate up to $100,000 of their IRA to a public charity without taking any of the donated amount into taxable income. Now a taxpayer over the age of 59½ can donate from their IRA any amount over $100,000 since the excess amount that enters into taxable income may be completely offset by a charitable deduction that is limited only by 100% of their AGI.  If you are planning a large donation in 2020, this may be a good strategy as long as you are over the age of 59½ and are not dependent on existing retirement funds for living expenses.
• Congress is debating another stimulus bill that would also extend government operations into 2021 to avoid a government shutdown. Additional tax provisions affecting individuals and businesses will be identified and communicated to our clients in the near future.

If you should have any questions about any of the items discussed in this article, contact us at Eubanks Accounting & Advisory and let us help 2020 end on a positive tax note.