MY VIEW: In year of Covid, here’s how to extend year-end giving
By Phillip Lanham
Nov 30, 2020
The Covid-19 pandemic has changed many things, but it hasn’t changed the spirit of generosity. As we head into what is typically considered the giving season, you may be planning your year-end giving. However, after months of unparalleled uncertainty and market volatility, you also may be wondering how to get started.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which addresses the far-reaching effects of the pandemic, includes new rules and incentives for charitable giving in 2020. As part of Greater Cincinnati Foundation’s mission to connect people with purpose, we highlight these opportunities to help you maximize your support of the nonprofits that provide critical services to our neighbors.
Charitable giving deduction for non-itemizers
If you take the standard deduction (i.e. you don’t itemize), you may reduce your taxable income by $300 per filing unit for your charitable contributions starting in 2020. The process is simple. Keep your receipts after you make a cash contribution (check, credit card, etc.) to a 501(c)(3) public charity and then report the gift when you file. Contributions to donor advised funds (DAFs) or supporting organizations are not eligible for this deduction.
Write-offs for charitable giving ordinarily are restricted to those who itemize. This “above-the-line” deduction is a considerable incentive for the vast majority who take the standard deduction and is a major win for countless nonprofits that are reeling from the pandemic’s devastating financial blows.
Offset up to 100% of your income
For the 2020 tax year only, you may deduct cash contributions to most public charities to offset up to 100% of your income. Ordinarily, the income tax charitable deduction for cash gifts is limited to 60% of your income. With the 100% limit in place, particularly generous donors can drastically reduce their 2020 federal income tax. You can contribute to those charities in multiple ways, even by setting up a fund or establishing an endowment. Once again, however, contributions to private foundations, DAFs or supporting organizations are not eligible for this deduction. Community foundations, including GCF, have several options besides DAFs that may be a tax-wise vehicle to maximize this unique opportunity.
Your ability to deduct up to 100% of your income with cash gifts is reduced by your gifts of appreciated assets such as publicly traded securities and real estate. That means your charitable deductions in 2020 cannot exceed 100% of your income, but you can carry unused cash contribution deductions for up to five years.
Bunching remains a viable strategy
By “bunching” or grouping two or three years of your regular giving amounts into the first year — along with other itemized deductions — you can accrue a total that is higher than the standard $24,800 deduction (for couples) or $12,400 (for single taxpayers). Through a DAF, you can distribute the charitable donations over multiple years, but you obtain the charitable tax deduction in year one. In year two (and three, if applicable), you then take the standard deduction.
Bunching maximizes the power of your giving to the causes that are important to you.
Each taxpayer’s situation is different. We encourage you to seek tax advice from your financial adviser to determine which options would work best for you before you prepare your giving plan.
The Covid-19 pandemic has exacerbated the hardships for our struggling neighbors and further strained the resources of the nonprofits that serve them. By leveraging these tax-wise strategies, you can make your generosity go further.
Read the article at Cincinnati Business Courier.