2020 Tax Planning: Charitable Giving
The area of charitable giving provides for various tax saving opportunities. For example, appreciated property may be given to charity without tax being imposed on the appreciation. Alternatively, charitable contributions may become part of the estate planning process. Yet, these benefits can only be claimed, if certain requirements such as substantiation requirements, percentage limitations and other conditions are met. Below please find some of these requirements and tax saving methods.
Tax bill can be minimized if the taxpayer claims itemized deductions. The magnitude of the tax savings depends on the taxpayer’s tax bracket. The tax savings increase if the charitable contributions are also deductible on the state and local income tax returns.
Another tax saving opportunity arises from the 2017 Tax Cuts and Jobs Act (“TCJA”). For tax years from 2018 through 2025, TCJA increases the percentage limitation on charitable giving from 50 percent to 60 percent of the individual taxpayer’s adjusted gross income (“AGI”) if the donations are made by cash to public charities. Additionally, the phase-out of itemized deductions allowed is removed for years from 2018 to 2025, creating even greater benefit.
Furthermore, for tax year starting after December 31, 2019 and before January 1, 2021, the taxpayer can deduct any qualified charitable giving if the contribution is not greater than the taxpayer’s AGI. To qualify, the contributions need to be made by cash and made to public charities, private foundations (excluding supporting private foundations), and certain government units. Any qualified charitable contributions in excess of the taxpayer’s AGI may be carried forward for five years. This tax saving technique also applies to partners in a partnership and S corporation shareholders.
Additionally, for tax year starting after December 31, 2019 and before January 1, 2021, for donations of food inventories and other qualified charitable contributions, the income-based percentage limit increases from 15% to 25% temporarily. Any qualified charitable contributions in excess of the 25% limit may be carried forward for five years.
What is more, if the charitable contributions are made to fraternal societies, certain private foundations, veterans’ organizations, and cemetery institutions, such contributions are limited to 30 percent of the taxpayer’s AGI.
Finally, taxpayers may be able to exclude from their gross income distributions from their IRA account made directly to a charity of up to $100,000 ($100,000 per spouse for a joint return). Taxpayers’ mandatory minimum distributions from their IRA account can be satisfied by the qualified charitable distribution.