As part of the Covid-19 relief passed earlier this year, Congress made charitable donations to qualifying charities more tax beneficial than ever.
Qualifying charities are public charities under Section 501(c)(3), but not Donor-Advised Funds, supporting organizations or private foundations.
Prior to 2020, the only way for an individual to get a tax deduction for donations to qualified charities was for them to itemize their deductions on Schedule A. With 90% of taxpayers, using the standard deduction instead of itemizing, they received no tax benefit. But for 2020, you are allowed to deduct charitable contributions to qualified charities up to $300, regardless of your filing status, as an above-the-line deduction.
For those donors who do itemize, for 2020 you can deduct donations to public charities up to 100% of your Adjusted Gross Income (up from 60%). So if you have $100K of AGI and you make a donation of $80K, the entire $80K will be deductible in 2020. Donations to Donor-Advised Funds do not qualify for the 100% of AGI deduction.
If you have appreciated publicly traded securities that you have held more than twelve months, the tax benefits are even greater than if you donate cash. If you donate the long-term appreciated securities to a public charity, your deduction is the fair market value of the securities and you are not taxed on the appreciation. For instance, if you bought Amazon stock more than a year ago for $10K and it is now worth $70K, if you sell the stock and donate the proceeds, you owe tax on $60K of appreciation and you have a $70K deduction. But if you donate the stock without selling it, your deduction is still $70K and you never pay tax on the $60K appreciation. The deduction is limited to 30% of your AGI but you can carryover any unused donation for five additional tax years.
Businesses (pass-through entities and also C corporations) are also encouraged to donate to charities and prior limitations have been lifted in certain instances. The IRS issued regulations that allow businesses to treat certain charity as an “ordinary and necessary” marketing business expense. Your company can deduct the donation if it is made with a reasonable expectation of financial return commensurate with the amount paid. The financial return can be sales, business-brand awareness, or product awareness.
With some of these rules expiring on December 31st 2020, the time to explore donating and the tax benefits from charitable donations is now. Talk to your tax advisor or feel free to contact Teri Kaye, CPA, Tax Practice Leader at Daszkal Bolton LLP at [email protected].
About the Author
Teri serves as the Tax Services Leader/ Partner-In-Charge of the Fort Lauderdale Office, and sits on the firm’s Executive Committee. With 30 years of experience in public accounting, she specializes in holistic tax planning and compliance for high net worth families and their entities, assisting them in reducing their total tax burden throughout their life cycle events.