Christmas is the time of year when many of us decide to give to charity, be that because we’ve been had requests sent to us from local charities, or because we have a favorite charity in mind.
Not many of us will give to charity for tax reasons alone, although with effective planning, we can give more and reduce the amount of our taxable income. This is good news for us, and as you will appreciate, it's good news for the charity involved, especially if they have been hit hard by COVD-19 this year.
Congress Has Given Us the Incentive To Do So
To encourage more giving this year, Congress passed the CARES Act, with a few changes for taxpayers. These changes are all designed to give additional tax relief to donors on their 2020 tax returns. One of the biggest changes they made was to raise the AGI limit to 100%. What does this mean for you?
It means that if you itemize deductions, you can elect to deduct those charitable contributions that qualify for up to 100% of your AGI (Adjusted Gross Income). To qualify, you need to pay in cash and make your donation to a qualifying organization in 2020. Qualifying organizations include most charities but you can contact the IRS to find out who does and doesn't qualify.
Typically, the tax deduction for charitable contributions is only available to taxpayers who itemize their deductions. Substantially fewer taxpayers itemize due to the significant increase in the standard deduction in 2017 Tax Code changes. A new $300 above the line deduction for charitable contributions is now available to taxpayers who claim the standard deduction.
Required Minimum Distributions
Historically, if you are at least 70 ½ you were required to take a minimum distribution from your IRA and workplace retirement plans. However, the CARES Act waives required minimum distributions during 2020 for IRAs and retirement plans, including beneficiaries with inherited accounts. This waiver includes RMDs for individuals who turned age 70 ½ in 2019 and took their first RMD in 2020
You can learn more about the CARES Act here, and discover other information that might prove useful to you if you're planning to make a charitable donation this year.
Annual Charity Giving
To make a charitable donation while still working towards your wealth transfer goals, you could use irrevocable trusts.
You have two choices here:
You could use a Charitable Lead Trust (CLT) to benefit the charitable organization for a set term of years by making an annual payment amount or a specified percent to the charitable organization.
Learn more about CLT's here.
Alternatively, you could use a Charitable Remainder Trust (CRT). This is the reverse of a CLT, as income is first dispersed to the beneficiary of the trust for a set period of time, and at the end of the term, the remainder is given to the designated charity.
Learn more about CRT's here.
Another method of annual charitable giving is through donating stocks directly to the charity. The donation you make and the size of the deduction you get will be greater than if you were to sell your stocks and donate your cash to the charity.
Learn more about donating stock here
Get In Touch
If you would like to know more about how charitable giving can fit into your estate planning objectives, get in touch with us. We can help you with your donation planning, and give you further advice to help you made reductions on your tax return.