How to Make the Most of Your 2020 Charitable Contributions

As most taxpayers know, charitable contributions can be a good way to help others while reducing your overall tax bill. In 2020, this may be true now more than ever, as organizations rely on cash and other kinds of charitable contributions to address increased needs and a challenging fundraising climate during the pandemic.

As you consider 2020 charitable contributions, here are some tax considerations to keep in mind:

For the 2020 tax year, charitable contributions got a boost under the federal CARES Act. Generally, taxpayers who do not itemize deductions do not get a tax deduction for donations. For 2020 only, the CARES Act authorizes a deduction of up to $300, even for taxpayers who claim the standard deduction. Cash donations to qualified charitable organizations up to $300 are fully deductible.

The CARES Act also increased the charitable contribution deduction limit for certain contributions from 60% to 100% of Adjusted Gross Income (AGI) for taxpayers who itemize. The excess over the 100% threshold can be carried over for five years. In order to qualify for the 100% limit, these must be cash contributions to public charities or private operating foundations. Because this change applies only to the 2020 tax year, taxpayers may want to consider paying multiple years’ worth of donations this year, setting up an endowment, or paying off a remaining pledge to maximize their tax savings.

For C Corporations, the CARES Act increased the charitable contribution deduction limitation from 10% to 25% of modified taxable income. For those who own a C corporation but don’t itemize their deductions on their personal return, consider making the donation from the business instead.

Consider donating appreciated securities. When you donate publicly traded securities, you can deduct the full market value (FMV) of the stock at the time of donation without having to recognize the capital gain inherent in the stock. This chart shows a simple example of the tax savings when you donate appreciated securities as opposed to selling the stock and writing a check with the after-tax proceeds.

Consider qualified charitable distributions from your IRA. For taxpayers who are 70 ½ or older, consider having a donation of up to $100,000 made directly from your IRA to a charitable organization. You won’t get an income tax deduction for the charitable contribution, but the distribution from your IRA will not be considered taxable income to you either.

If you are in a higher tax bracket or have more cash reserves this year and are inclined to make a large donation, but you can’t make up your mind about how you want the funds disbursed before the end of the year, consider setting up a donor advised fund. Donations of cash and stock to a donor advised fund can provide an immediate tax deduction, even though the charitable organizations may not receive the ultimate payouts until a future year. 

Consider qualified conservation easements. If you own real property that would be suitable for public parks, wildlife habitats, or historic buildings, donating an easement to that property may qualify as a charitable contribution. This type of contribution is a hot button for the IRS, but, if done correctly, it can still generate a legitimate and valuable tax deduction.

Keep in mind that some charitable donations, even cash, are not tax deductible. In general, donations to a Gofundme account are not deductible, even if the account is for a seemingly charitable purpose.

Be sure to have an appraisal for non-cash donations of more than $5,000. For instance, if you donate $2,000 worth of furniture three different times during the year, you need a qualified appraisal of all items in order to take the full deduction of $6,000.

For more information about planning for your 2020 income taxes, contact us. We are here to help.

Authored by Ginny Potthoff, CPA

© 2020