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CARES Act Charitable Contributions Options

Thank you for your interest in making a gift to the National Academy of Social Insurance. Here is a quick summary of provisions from the 2020 CARES Act that may affect your charitable giving.  

The CARES Act increases the limitations on deductions for charitable contributions made in 2020, for individuals as well as for corporations.

How much are you able to donate?

If you don’t itemize deductions or you take the standard deduction: Individuals are permitted an above-the-line deduction for cash gifts up to $300 ($600 for married couples filing joint returns). Pre-CARES Act, charitable contributions only benefited those who itemized their deductions. 

If you do itemize: The CARES Act increases the existing cap on annual giving to 100% of your adjusted gross income (AGI).

(Prior to the CARES Act, individuals could not make tax-deductible charitable contributions that exceeded 50% of their AGI. This 50% of AGI limitation has been suspended for gifts made in 2020.)

This means a donor like you will get a charitable contribution deduction for the full amount of your donation. Charitable contributions in excess of this amount can be carried forward for five years subject to the AGI limit in those years.

For corporations, the 10% limitation has been increased to 25% of taxable income.

This new deduction does not apply to noncash gifts or to gifts contributed to donor advised funds (DAF).

Donations from your Individual Retirement Accounts (IRAs)

Charitable contributions made from a donor’s IRA are not taxable income to the donor. Required minimum distributions (RMD) from IRAs and other retirement plans that would have had to start in 2020 do not have to start until 2021.

Even so, making a qualified charitable donation (QCD) this year will allow itemizers and non-itemizers alike to direct up to $100,000 from their IRA to charities in a tax-efficient manner.

(Please consult your tax advisor for further guidance.)

Gifts of securities

Gifts of securities are not “qualified charitable contributions.” A donor with securities which have declined in value below cost may wish to sell those securities, realize the capital loss and contribute the cash without regard to percentage limitations. Or the capital loss may be used to offset gain on sale of appreciated assets, again generating cash that can be used for charitable contributions without percentage limitations. Even if a donor recognizes capital gain, donating the sale proceeds could eliminate taxation of any ordinary income, leaving only capital gains to be taxed.

Charitable Lead Annuity Trusts (CLATs)

Low interest rates in the wake of the COVID-19 pandemic create an opportunity for individuals who are charitably inclined, and want to plan for future generations, to utilize a Charitable Lead Annuity Trust (CLAT).

A CLAT is a trust that most often provides an annuity payment to a charity for a predetermined term of years. At the end of the term, the remaining assets can be used to fund a trust for the grantor’s family members. At the start, the grantor receives an income tax deduction based on the fair market value of the present interest of the annuity payments going to charity. The grantor also uses a small portion of his or her federal estate and gift tax exemption based on the remainder interest going to the trust for his or her family.

The current low interest rates result in a higher income tax deduction providing an immediate benefit to the grantor/donor. If the assets contributed to the CLAT outperform the estimated rate of return based on these low interest rates, the grantor’s family would also receive considerable assets while using minimal federal estate and gift tax exemption. This situation could be ideal for an individual who has a large income tax burden and was already considering providing for charities.