Americans have been noted to be the most generous on the planet in terms of charitable giving, and that generous nature has inspired us many times over when we face and overcome crises as a community.
The Federal government is also trying to promote charitable giving, and has added incentives beyond what is generally provided for charitable donors. For individual donors, this should be considered in terms of whether you donate enough to justify itemizing on your tax returns.
If you don’t itemize:
The doubling of the standard deduction made taxes simpler for most, and individual charitable contributions did not fall as much as expected as a result of this change. Perhaps because of the lower number of people that itemize, part of the CARES Act focuses specifically on the ability to get benefit from chartable acts even if you don’t itemize!
Specifically – you can claim up to a $300 “above the line” deduction for a charitable gift, and still claim the standard deduction. This amendment and incentive applies not only to the 2020 tax year, but future years too.
If you do itemize:
There is a rule that you are only able to claim a deduction for up to 60% of your adjusted gross income (AGI) per year.
So if your AGI was $500,000, you could make a charitable contribution of up to $300,000 and have it be fully deductible.
For this year only, you may claim up to 100% of your AGI as a charitable contribution deduction. If you donate more that 100% of your AGI, the remainder can be carried over and spread in the next five year (upto the standard 60% of AGI each year).
This means that a wealthier philanthropist who has an AGI of $500,000, donates $500,000, they could take a deduction for $500,000 and so have zero taxable income for the year. If AGI is expected to be the same for the subsequent five years, $2 million could be donated right away for COVID-19 relief with $500,000 deducted this year, and $300,000 deducted each subsequent year for 5 years.
A word of caution – if their income comes down in subsequent years, the deduction limit would fall as well, and the charitable organization must be qualified (you can check on the IRS website here).
What if I want to give specifically for COVID-19 relief?
Many philanthropists are concerned with the ability of charities to continue to function during this crisis, and a recent study by Fidelity Charitable suggests that while 25% of donors planned to increase their charitable giving, one third of respondents felt they did not have the information needed to understand how to direct their efforts effectively. Because many older volunteers fall into an at-risk category, they can’t participate the way they normally would to step up their efforts either.
Many programs and celebrities have helped bridge this gap by coming out with their favorite charities to their audiences or endorsing a particular charity through appearances on shows such as The Tonight Show with Jimmy Fallon. However, if you are looking for charities that are more local with a focus on the New Jersey community, it may be worthwhile to check out this article: How to volunteer and donate in New Jersey during the coronavirus outbreak. It has a county-by-county breakdown of over 75 charities with a short summary of each and links to additional information.
When considering larger charitable gifts and how they will impact your families’ financial security, a larger overview of family wealth can be helpful, and charitable trusts may also provide a way to maximize the benefits not only for your family, but the charity as well.
Click here to read about the differences between charitable lead trusts and charitable remainder trusts.
Or schedule a meeting with one of our Trust officers. We’re always extremely gratified to participate in charitable efforts.