CARES Act and Giving Incentives
A message from our Forever Lancaster chair
Ben Atwater of Atwater Malick:
With nearly three-quarters of a million Americans testing positive for COVID-19, we are staring down a health emergency. In response social distancing measures are precipitating an unrivaled economic emergency, including the unemployment of more than 20 million Americans. For too many, this is a time of not only sickness and death, but of loneliness and desperation.
New government response legislation:
Recognizing the extent of this national emergency, on March 27th the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. This legislation provides financial relief for individuals, small and large businesses and nonprofits, as well as increased charitable giving incentives for individuals and corporations.
What this means for you as a donor:
With our nation and our Lancaster County community in crisis, we ask you to consider leveraging the CARES’ incentives and making much-needed gifts in these difficult days. The Lancaster Cares fund, started by the Community Foundation and the United Way of Lancaster, is getting funds out quickly to support food, housing, and other critical needs Lancaster residents are facing.
For taxpayers who do not itemize their deductions:
The Act allows an above-the-line deduction for cash contributions of up to $300. Even if you claim the standard deduction in 2020, in addition you can write-off up to $300 in charitable giving.
For those who itemize their deductions:
The Act has increased deductible income limits for cash contributions by individual and corporate donors. Individuals can deduct up to 100% of their adjusted gross income (AGI) in 2020. Corporations can deduct up to 25% of their taxable income. These temporary 2020 increases raise the limits from 60% and 10%, respectively.
These simple changes are for cash contributions in 2020 only. Contributions to donor advised funds and supporting organizations do not qualify. Existing carryover rules of five years still apply for contributions over deductible income limits.
IRA charitable contributions:
The change to 100% of AGI opens the door for those over 59 ½ years old to make charitable contributions using IRA funds. Currently, for most, it only makes sense to use an IRA for charitable giving if you are over 70 ½ by leveraging a Qualified Charitable Distribution (QCD). A QCD allows those over 70 ½ to make a direct gift of up to $100,000 annually from an IRA to a public charity without incurring tax.
Gifts from IRAs other than QCDs are generally not feasible because any withdrawal from your IRA is taxable as income in the year of withdrawal. Since you can only deduct 60% of your AGI in any one year, taking money from your IRA to give to charity can result in a tax bill. However, with 100% of your AGI deductible in 2020, you can take a cash distribution from your IRA, contribute it to charity, and you may completely offset the tax attributable to the distribution with a deduction. You must be over 59 ½ to remove money from an IRA without a 10% early withdrawal penalty.
Giving Appreciated Property:
Even with the 100% AGI deductibility limit, it still might make more tax sense for a donor to give appreciated property in order to avoid the capital gains tax on that property. CARES offer no relief in this area, however, it is worth remembering that existing law allows you to deduct up to 30% of AGI when you give appreciated securities to a donor advised fund and you can carryover amounts in excess of the 30% for five years.
If giving appreciated property is what makes the most sense for you, act quickly to establish a donor advised fund, make the contribution and the Lancaster County Community Foundation will work aggressively to liquidate the property and get your gifts into the community at this most pivotal of times.
We appreciate everything you do for this community!
As our national emergency pulls our community apart via social distancing measures, it also pulls us together as we rally around our friends, family and loved ones to offer our support in these crucial days. If you are in a financial position to help our community, please contact the Lancaster County Community Foundation to discuss how to best leverage new and existing tax laws that will serve to multiply the impact of your giving.
– Ben Atwater, Atwater & Malick, Chair of Forever Lancaster