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How the SECURE and CARES Acts Affect Charitable Gift Planning


As we head into the final months of 2020, now is a good the time to talk to your clients about charitable gifts. The global pandemic has highlighted the critical role nonprofits play in our community, and donors want to make a difference.

You can help your clients make the most out of their gifts with the recent changes to the rules on charitable giving for both the SECURE and CARES Acts.

Changes To RMD Rules

Going forward, most taxpayers won’t be required to begin taking Required Minimum Distributions (RMDs) from qualified retirement accounts until age 72. Additionally, RMDs have been suspended for 2020.

Qualified Charitable Distributions (QCDs) allow people 70½ or older to make tax-free distributions of up to $100,000 from their IRA directly to their favorite charities. These distributions have become a very popular method of charitable giving that can satisfy all or some of a donor’s RMD, which can greatly reduce taxable income.

If RMDs aren’t required in 2020 and going forward they won’t be required until age 72, is there any incentive to make a QCD in 2020 or before age 72?

The answer is yes.

Tax benefits aren’t the biggest motivation for charitable giving, but they can influence the timing of gifts and which assets are given. Even though RMDs aren’t required in 2020, a QCD can significantly reduce future RMDs. If your client doesn’t need their full annual RMDs in the future, making gifts to charity now can decrease that IRA balance and decrease the amounts required to be taken in future years.

Additionally, your clients may have much more invested in their IRAs than in their checking and savings accounts, so giving from qualified accounts could allow them to give at much higher levels than if they only gave from their cash accounts.

Don’t overlook Qualified Charitable Distributions just because RMDs have been temporarily suspended. They’re still worth consideration.

Unlimited Charitable Deduction For Cash Gifts In 2020

A surprising, but significant, opportunity came in the form of eliminating the deductibility limits for charitable gifts of cash to public charities in 2020.

Prior to this change, deductibility was limited to 60 percent of Adjusted Gross Income (AGI) for cash gifts to public charities and 30 percent of AGI to private foundations.

This year, cash gifts can be deducted up to 100 percent of AGI.

If you have a client who experienced a large liquidity event in 2020, this could be the year to consider a cash gift. For instance, if someone were to sell a business or a valuable piece of real estate, or receive an inheritance, this is the year to consider a larger than usual cash gift.

Additionally, if you have a client looking to rebalance their portfolio, it may be advantageous to sell some stock and make a charitable gift of cash to minimize the capital gains tax. Normally, the smart thing to do would be to donate the stock itself, but with the unlimited charitable deduction for cash gifts, selling stock could be the smarter way to go in 2020.

Keep in mind some important details you should know about this change:

  • The five year carryforward for unused charitable deductions is still available.
  • Donor advised funds are not eligible. Deductibility for gifts to DAFs remains unchanged at 60 percent of AGI for cash gifts and 30 percent of AGI for capital gain property.

Deductibility limits for cash gifts return to 60 percent of AGI in 2021.

Above the Line Charitable Deduction

This year, taxpayers may deduct up to $300 in cash contributions even if they don’t itemize. For decades, only those who itemized were able to realize a direct tax benefit from charitable contributions.

Far fewer people itemize today due to the significant increase to the standard deduction made by the Tax Cut and Jobs Act. Now, non-itemizers can take advantage of this incentive.

There are important details to keep in mind about this incentive:

  • It applies only to cash gifts.
  • Donor advised funds are not eligible.

Now Is the Time to Plan 2020 Charitable Gifts

Many of the new tax incentives around giving exclude the use of donor advised funds; however, many giving opportunities through the Saint Paul & Minnesota Foundation are still eligible for these benefits. Connect with our expert staff today to help your client finish their 2020 giving.

Additional Resources

SECURE Act And Tax Extenders Creates Retirement Planning Opportunities And Challenges

Analyzing The CARES Act: From Rebate Checks To Small Business Relief For The Coronavirus Pandemic

4 Things Fundraisers Need to Know About the SECURE Act

Deduct 100% of Income With a 2020 Charitable Gift Annuity? Yes (but not likely with a CRT)

The Saint Paul & Minnesota Foundation does not provide tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors regarding your individual situation before engaging in any transaction.

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