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2020 Tax Changes to Charitable Donations

Updated: Dec 15, 2020

According to an AARP Bulletin released this month, the percentage of Americans giving to charity has hit an all time low.

Families struggling to put food on their own tables can hardly be expected to make charitable donations.

With that said, organizations need donations more than ever as many charities face an increase in demand.

Even for individuals and families in a position to give, tax advantages are limited. More taxpayers are better off taking the standard deduction. Since charitable donations are an itemized deduction, only a small group of taxpayers are able to reduce their tax bill by claiming them.

This year some temporary tax advantages exist to encourage donations. There are also ways to lower the cost of giving that won’t directly impact your pocketbook.

New Deduction: Under the Coronavirus Aid Relief and Economic Security (CARES) Act enables taxpayers to claim up to $300 in charitable donations when they take the standard deduction. Donations must be made to 501(c)(3) nonprofits such as food banks.

New Limit: Another CARES Act provision allows taxpayers itemizing deductions to deduct cash contributions up to 100 percent of their adjusted gross income. The temporary position is a big increase from the typical 60 percent limit.

Donate IRA Funds: This next tip if for folks withdrawing from their retirement accounts. Once you turn 70 ½ you are generally required to take a distribution from your traditional IRA. If you don’t need the distribution, you are allowed to donate the withdrawal directly to a 501(c)(3). The withdrawal will not be counted as taxable income when donated. Have the check made out and sent to the charity directly.

Donate Shares of Stock: Consider gifting shares of stock or mutual funds that have appreciated in value to a charity instead of a cash donation. If you’ve held stocks for at least one year before the donation you won’t pay tax on the capital gains.

Amass Gifts: Group larger donations in one tax year so that you can take advantage of itemizing.

The Meaning of Gifting: If you can’t make tax-deductible gifts, consider making donations to people in need. While giving money or donating goods to individuals is not tax-deductible, donating can feel good for yourself and for the charity or person receiving the donation. Donate responsibly.

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