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Gift Planning

Opportunities for Charitable Giving in Recent Legislation

On December 27, 2020, the president signed into law the Consolidated Appropriations Act, 2021. It funds the federal budget through the end of the fiscal year, and it contains a number of items designed to provide relief to individuals, businesses, and other organizations that have been adversely affected by the coronavirus. It also funds vaccine distribution, contact tracing, and testing.

The official name for the part of the Consolidated Act that pertains to the coronavirus is the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, but it is commonly referred to by the shorthand Coronavirus Stimulus Act or Coronavirus Relief Act.

On March 27, 2020, when the serious effects of the coronavirus were becoming apparent, another stimulus bill was enacted. It was officially known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act. There were two provisions in that act that were directly beneficial to donors to charitable institutions and which have been extended by the new legislation.

A charitable deduction for non-itemizers. If you made a cash contribution in 2020, you can claim $300 on your income-tax return even if you take the standard deduction. The new stimulus act continues that provision through the end of 2021, except that the amount that can be claimed by a couple filing jointly will be raised to $600. Previously, the limit for both single filers and married couples filing jointly was $300.

Higher deduction limit. If you made cash gifts to charities, you could deduct them to the extent of your entire adjusted gross income. For example, if your adjusted gross income was $500,000 and you made cash gifts of $500,000 to qualifying charities, you could deduct the entire amount. The new stimulus act has also extended this higher limit through the end of December 2021.

An opportunity that pre-existed both of the stimulus bills and continues to be possible is a contribution from your IRA. If you are aged 70½ or older, you may authorize your IRA administrator to transfer up to $100,000 per year (cumulatively) to one or more qualifying charities. The amount you transfer will not be added to your taxable income, and it will count towards your mandatory distribution requirement. Required minimum distributions were waived for 2020; so if you had reached the age of 72 when minimum required distributions were normally required and you did not need the money for living expenses, you might have withdrawn nothing or a small amount in that year. In 2021 required distributions resume, so making your gifts from your IRA can be an appealing way to satisfy the distribution requirement.

Planning Considerations

Here is a summary of things to consider in light of recent coronavirus stimulus legislation:

  • If, when preparing your 2020 income-tax return, you discover that it is better to claim the standard deduction than to itemize, remember to claim the allowable charitable deduction for non-itemizers.
  • If you will also claim the standard deduction in 2021 and you are married filing a joint return, note that you can deduct up to $600 for cash donations.
  • If you have been contemplating a large cash gift, it may be better to make that gift in 2021 when you can deduct up to 100% of your adjusted gross income. This could be the best year to combine your intended gift with a conversion of a regular IRA to a Roth IRA. The usable deduction for the gift may offset the taxable income resulting from the conversion.
  • If you have a regular IRA and will not need all of it for living expenses, consider making your charitable gifts from it. This can satisfy minimum distribution requirements that resume in 2021.

The Consolidated Appropriations Act is quite long and detailed. We have called attention to only a few provisions that pertain to charitable giving directly or indirectly. Please consult your own legal or financial advisors regarding how you or your business could be affected by other parts of this act.

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