The world is always changing, and new opportunities for tax savings arise constantly. Here are some of the latest updates and publications that may affect your giving:
Charitable deductions set to expire December 31, 2021:
- A $300/$600 universal charitable deduction for cash gifts. The deduction is $300 for single filers and $600 for married couples filing jointly. This is available to taxpayers who take the standard deduction. This tax incentive is available for cash gifts to qualified charities (but not to supporting organizations or donor advised funds).
- A lift on the cap on deductions for cash contributions. Contributions to public charities are generally limited to a percentage of a taxpayer’s adjusted gross income (AGI). The extended CARES Act provisions lifted the cap on annual contributions for those who itemize, increasing it from 60% to 100% of AGI for 2021. Any excess contributions available can be carried over to the next five years. For corporations, the law raised the annual limit from 10% to 25% of taxable income.
In March 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act became law. Below are important highlights focused on charitable giving that may be of interest as you consider supporting “Community” for you and your advisors to consider:
- Temporary Universal Charitable Deduction—Taxpayers who do not itemize their deductions can take a one-time deduction of up to $300 for gifts made to charitable organizations. The provision is intended only for the year 2020; however, in the text of the bill, it states taxable years “beginning in 2020 …” and does not include a sunset date, thus it conceivably could extend beyond 2020. The deduction is ONLY for gifts of cash made in calendar year 2020 and does not cover other types of gifts or contributions made to donor-advised funds or private foundations.
- Suspends the 60 percent adjusted gross income limitation for individuals’ charitable contributions for the year 2020. In a typical year, individuals can only take a charitable deduction of up to 60 percent of their adjusted gross income, no matter how much they give. For 2020, there is no limit, making cash contributions fully deductible.
- Waives for 2020 the required minimum distributions from retirement plans, such as pensions and 457 plans. Any minimum distributions from retirement plans that would have been required in 2020 can be delayed until 2021. This change reduces the incentive for donors to make gifts from their individual retirement account (IRA)—the IRA Rollover Provision.
- The Medical deduction threshold – has been reduced to 7.5% of adjusted gross income (AGI) from 10%, a direct savings for you.
- Repeals the maximum age for traditional IRA contributions.
- Increases the required minimum distribution (RMD) age for retirement accounts to 72 (up from 70½).
- Allows long-term, part-time workers to participate in 401(k) plans
- Offers more options for lifetime income strategies.
- Permits individuals to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses.
- Allows parents to withdraw up to $10,000 from 529 plans to repay student loans.
As part of a larger government spending package signed into law on December 20, 2019, Congress included provisions from the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The act includes reforms that could make saving for retirement easier and more accessible for many Americans.
The legislation reflects policy changes to defined contribution plans (such as 401(k)s), defined benefit pension plans, individual retirement accounts (IRAs) and 529 college savings accounts. Most provisions in the law went into effect on January 1, 2020.
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