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CARES Act implications on charitable contributions
Like our students, you probably are seeking some answers during this unprecedented time. If you are fortunate enough, your questions are not about securing your basic needs, but rather, how you can help and what the Coronavirus Aid, Relief and Economic Security Act (CARES Act), enacted on March 27, 2020, means to you.
The below has been compiled from various summaries regarding the implications of the CARES Act on Charitable Contributions. We hope this compilation is helpful. We remind you that this should not be used for official tax purposes. Please consult with your own tax advisor for specifics on how the CARES Act impacts you.
CARES Act Charitable Giving Summary
The Coronavirus Aid, Relief and Economic Security Act (CARES Act), was enacted on March 27, 2020. There are incentives to increase your charitable giving in 2020.
If you take the Standard Deduction on your taxes in 2020 you are now eligible to take a qualified “above the line” deduction of up to $300 ($600/couple) for charitable contributions to the CMC Foundation, or other publicly-supported non-profits.
If you itemize, under the CARES Act, you can get a federal income tax deduction for charitable cash contributions of up to 100% of your Adjusted Gross Income (AGI) (up from 60%). This deduction can be enhanced by a Roth IRA conversion.
Regarding your Retirement Account Required Minimum Distributions (RMD) and access to your retirement funds: “If you need money, take it. If you don’t, don’t take it” (your RMD is waived for 2020). This applies to inherited accounts as well.
> Above-the-line deductions for those who take the standard deduction
Traditionally, if you take the standard deduction instead of itemizing, you are not eligible to deduct charitable contributions. Under the CARES Act, someone who takes the standard deduction may take a qualified charitable contribution deduction of up to $300 an individual ($600/couple) against their Adjusted Gross Income (AGI) in 2020.
- This above-the-line charitable deduction must be in cash and made to a publicly supported charity, such as the CMC Foundation. Contributions to a non-operating private foundation or to a donor advised fund are not eligible.
- Lower tax brackets may not be eligible for the full $300 deduction.
> Modification of limitations on cash contributions
Under the CARES Act, you can get a Federal income tax deduction for charitable cash contributions of up to 100% of your Adjusted Gross Income (AGI) (up from 60%). This deduction can be enhanced by a Roth IRA conversion.
- Any excess is carried forward as a charitable contribution in each of the next five years.
- The AGI adjustment is for gifts to public non-profits, such as the CMC Foundation. Contributions to non-operating private foundations or donor advised funds are not eligible.
> For corporations
The CARES Act temporarily increases the limitation on the deductibility of cash charitable contributions during 2020 from 10% to 25% of a corporation's taxable income.
> Retirement Accounts and Required Minimum Distributions
IF YOU NEED MONEY, YOU CAN TAKE IT. In 2020, a “qualified individual” can take up to $100,000 in “coronavirus-related” distributions from an IRA or qualified retirement plan and:
- Not have to pay the 10% early distribution penalty even if you are under age 59½
- Not have to withhold 20% in federal income taxes
- Not have to pay tax on it if repaid within three years
- Elect to spread the inclusion of income over three years.
IF YOU DON’T NEED MONEY, YOU DON’T HAVE TO TAKE IT. Required Minimum Distributions (RMDs) for retirement accounts have been waived in 2020. This applies to owners of most qualified retirement plans (but not nongovernmental 457(b) plans) and IRAs, including inherited IRAs.
- The 2019 SECURE Act changed the RMD beginning age from 70½ to 72. This change only applied if you had not yet turned 70½ before 2020. If you turn 70½ in 2020, this rule does not apply to you since you don’t have to start your distributions this year.
- If you already took the RMD from your IRA in 2020, you have 60 days from the date of the distribution to put it back or convert to a Roth IRA and not be taxed on it.
- The bill also deals with specific types of inherited accounts. If 2020 is one of the five required distribution years, beneficiaries get an extra year, turning a five-year rule into a six-year rule.