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2020 Charitable Giving Incentives

As we near the end of the calendar year, we hope that you will consider making a tax-deductible gift to Salem. This year there are several unique tax advantages to making your gift before December 31, 2020.

$300 Extra Charitable Deduction for 2020

Did you know that the Coronavirus Aid, Relief, and Economic Security (CARES) Act carved out a new deduction of as much as $300 for donors who choose the standard deduction for the 2020 tax year?

This special 2020 deduction is only available if you take the standard deduction and applies to “cash” (cash, check, and credit card) donations.  Gifts of “noncash” items, such as securities or clothing, don’t qualify and the donation must be made directly to a “qualified” charity.  The deduction will appear on tax returns for 2020 above the line for calculating adjusted gross income (AGI) which can be beneficial for other items based on AGI. 

Qualified Charitable Distribution Offset RMD and Taxable Income

Did you know that the Qualified Charitable Distribution (QCD) is great way to offset a Required Minimum Distribution (RMD) and avoid taxable income?

A Qualified Charitable Distribution (QCD) from a tax-deferred retirement account (IRA, 401K, 403(b), 457(b), or inherited IRA) is not a new technique, but it is often overlooked and there are new rules for 2020.  When paid directly to a “qualified” charity, the QCD is excluded from your taxable income.  This is not the case with a regular withdrawal from a tax-deferred retirement account, usually as a Required Minimum Distribution (RMD), even if you use the funds later to make a charitable contribution. 

QCDs allow IRA owners who are age 70 ½ or older to transfer up to $100,000 annually from an IRA directly to a “qualified” charity, tax-free.  If you are married, you and your spouse may each transfer $100,000 as a QCD for a total of $200,000. QCDs are not allowed from company plans or active SEP or SIMPLE IRAs.  The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 waived RMDs for this year but you can still make a Qualified Charitable Distribution (QCD).

QCDs became valuable after the tax reform of 2018 because many taxpayers now take the standard deduction, which eliminates the tax deduction for charitable gifts.  QCDs allow donations made from the tax-deferred retirement account to be excluded from income in addition to taking the standard deduction. The amount is not included in your Adjusted Gross Income (AGI), so you can potentially avoid the loss of exemptions, deductions, credits / phase outs, AMT, surtaxes, and increases in Social Security premiums for Medicare Part B and Part D.

The Suspension of Charitable Deduction Limits for 2020 - AGI

Did you know that the Coronavirus Aid, Relief, and Economic Security (CARES) Act temporarily suspended the charitable deduction limits on “cash” contributions for the 2020 tax year?

The normal charitable deduction limitations range from 20% to 60% of a taxpayer’s adjusted gross income (AGI), depending on the type of property donated and the type of organization receiving the donation. 

For 2020, under the new CARES Act rules, the AGI limit has been eliminated for “cash” (cash, check, and credit card) donations to allow taxpayers to deduct charitable contributions up to 100% of their AGI. The donation must be made directly to a “qualified” charity and the taxpayer must itemize deductions.   Contributions to a donor advised fund or a private foundation do not count towards this higher deduction ceiling.

A taxpayer might want to consider bunching several years’ worth of donations to a charitable organization in order to take advantage of this higher deduction threshold that exists for 2020. As in the past, contributions in excess of 100% of AGI may be carried over to future years based the taxpayer’s ability to itemize deductions in any subsequent year.

Your Investment Makes a Difference

Your investment makes a difference to the continued success of Salem Academy and College.  Please consider making a gift today by phone, mail, or online at www.salemacademy.com/give.  If you have questions, please call the Office of Institutional Advancement at 336-721-2607 or email development@salem.edu.

For more information on the CARES Act and charitable deductions, see IRS Publication 526 and/or the Joint Committee on Taxation publication JCX-12R-20 Joint Committee on Taxation publication JCX-12R-20.

Salem Academy and College does not provide legal, tax or accounting advice.  You should consult your legal and/or tax advisor before making any financial decisions.

This document is being provided for educational and informational purposes only and nothing herein should be construed as investment, legal or tax advice.  Certain information herein has been obtained from third-party sources and, although believed to be reliable, has not been independently verified and its accuracy or completeness cannot be guaranteed.