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Recent Legislation Provides Continued Opportunities for Tax-Smart Giving

No doubt, 2020 brought about many changes to tax legislation related to charitable giving, and 2021 is no exception. Read on for a brief overview of recent tax laws and discuss them with your advisor to see how they might create tax-smart giving opportunities for you.

Consolidated Appropriations Act of 2021
Included in this Covid-relief package is the expansion of certain charitable deductions provided in the CARES Act of 2020, and the expiration of other rules pertaining to IRAs.

  • The $300 above-the-line deduction for those making charitable cash contributions to qualified charities and who take the standard deduction has been extended through 2021, and was expanded to $600 for married couples filing jointly. (The CARES Act limit was set at $300 per filing unit.) 
  • The adjusted gross income limit for individual donors was also extended through 2021. Individuals can continue to elect to deduct cash gifts of up to 100% of their AGI (normally 60%).
  • Charitable deduction limits for corporations have also been extended through 2021. Corporations may continue to deduct up to 25% of taxable income to charity (normally 10%).
  • Required minimum distributions (RMDs) from qualified retirement plans are back in force in 2021, after having been waved in 2020 as part of the CARES Act. Many individuals will see larger IRA balances, and larger RMD requirements in 2021, making qualified charitable distributions (QCDs) attractive options for charitable giving.

CARES Act
The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law March 2020 in response to the many hardships presented by the COVID-19 pandemic. It provides a number of tax incentives for charitable giving for both individuals and corporations. As always, be sure to discuss these with your tax advisor to better understand if and how the laws may apply to you. These tax incentives apply only to charitable gifts made in the 2020 tax year.

  • “Above-the-line” deduction for charitable gifts made in cash of up to $300 even if you don’t itemize. 
  • The adjusted gross income (AGI) limit for cash contributions for individual donors was increased from 60% of AGI to up to 100%. 
  • Corporate tax deduction limitations increased from 10% of taxable income to 25%

SECURE Act
Recent changes to required minimum distribution (RMD) rules may have tax implications for you. The new SECURE Act of 2019 (Setting Every Community Up for Retirement Enhancement) was enacted December 20, 2019 and became effective January 1, 2020.

The law continues to allow you to make qualified charitable distributions from your IRA if you are 70 1/2 or older, however, it now delays the mandatory withdrawal age to 72. Here are the specifics:

  • For individuals who turn 70 1/2 after December 31, 2019, the required minimum distribution age is increased to age 72. Those who reached age 70 1/2 before or during 2019 must still take RMDs under the previous law. 
  • IRA balances may, as a result, be larger with one or two years of added growth. Larger RMDs for people who are 72 or older will also mean more taxable income for you. 
  • Making a qualified charitable distribution of up to $100,000 per year, per individual may help relieve your increased tax burden, and provide a tax-smart giving strategy for you to support the causes you care about.

In addition to changing RMD rules, the SECURE Act also repealed the stretch IRA payouts to beneficiaries other than spouses and certain eligible designated beneficiaries. Under this new legislation, beneficiaries can no longer "stretch" distributions from inherited IRAs based on the heir's life expectancy. Now the law requires inherited IRA funds be distributed over a 10-year period.

The gift planning team at Cincinnati Children's can help you devise tax-smart ways to support Cincinnati Children's, while lessening the tax burden for your heirs. Contact us today!

This is provided for informational purposes only. Please consult with your tax advisor for details on how the SECURE Act impacts you.