Charitable Giving Amid COVID
As we enter the high season for charitable giving, there are some notable changes to IRS rules, as well as warnings, about philanthropy amid COVID-19. The CARES Act carved out 2020 as a special year for charitable giving. Even if you do not itemize deductions, this year you can take a charitable deduction of up to $300 for cash contributions, (“non-cash” items, such as securities or clothing, don’t qualify for this provision) made to qualifying organizations (“those that are religious, charitable, educational, scientific or literary in purpose.”)
Previously, charitable contributions could only be deducted if you itemized, so this is a one-year only deal for those who claim the standard deduction. The deduction will be “above the line,” which means that it will reduce your adjusted gross income (AGI) dollar for dollar, an important benefit, especially for retirees whose AGI can affect taxability of Social Security benefits and cost of Medicare.
The $300 limit applies to each return, not each person, according to a footnote in a publication by the staff of Congress’s Joint Committee on Taxation. So if you are married filing jointly and do not itemize, you are allowed to deduct “up to a total of $300 in qualified charitable contributions on the joint return.”
Itemizers also got a CARES Act benefit, the deductibility cap of cash contributions went from 60 percent of AGI to 100 percent. Many of these folks who are over age 70 1/2 may want to consider another tax efficient means of giving: the Qualified Charitable Distribution (QCD). This technique allows you to make a grant of up to $100,000 directly to an eligible charity (not to a private foundation, nor to a charitable supporting organization or a donor advised fund) from your IRA. While you were not required to take your 2020 Required Minimum Distribution, for many who hold most of their wealth in retirement accounts, this rule allows you to give money without paying tax on the amount of the donation, though you are not entitled to claim a charitable contribution.
SCAM WARNINGS: Depressing, as it may seem, a pandemic and economic insecurity have combined to put scammers on the prowl. “Criminals seize on every opportunity to exploit bad situations, and this pandemic is no exception,” said IRS Commissioner Chuck Rettig. The agency has warned of a new text scam “that tricks people into disclosing bank account information under the guise of receiving the $1,200 Economic Impact Payment.” The IRS does not send unsolicited texts or emails; nor does it EVER call people with threats of jail or lawsuits, nor does it demand tax payments on gift cards. Don't click on links claiming to be from the IRS. Be wary of emails and websites, they may be nothing more than scams to steal personal information.
Additionally, fraudsters are setting up fake charities, with names like nationally known organizations. Legitimate charities do not ask you to wire money or give cash and will provide their Employer Identification Number (EIN), if requested, which can be used to verify their legitimacy. Taxpayers can find legitimate and qualified charities with the search tool on IRS.gov.
OTHER CHARITABLE TIPS
Investigate the Charity’s Financial Health: Once you have confirmed that the group is legitimate via the IRS, you can see what others say about the organization and how much of your donation goes to supporting programs, versus overhead. The Better Business Bureau’s (BBB) Wise Giving Alliance, Charity Watch, GuideStar, Charity Navigator and GiveWell are all helpful resources.
Gift Your Winners: Many securities have soared this year, which makes it a great time to gift appreciated securities from a taxable investment account. Doing so allows you to write off the current market value (not just what you paid) and escape taxes on the accumulated gains. Be sure to get information about how to send the assets and be sure to confirm all receiving account numbers.
Consider Donor Advised Funds (DAFs): If you want to better manage your charitable giving, check out DAFs. These accounts allow you to contribute cash, appreciated assets, or investments and grant to a charity at any time; write off the current market value (not just what you paid) to escape taxes on the accumulated gains; and then recommend grants to your favorite charities, whenever makes sense for you. Another advantage of a DAF is that it allows you to give in a year when you have had higher than expected income, or when you are trying to bunch deductions in order to qualify for itemizing deductions.
Watch Your Timing: If you are planning to send a check, your payments must be postmarked by midnight December 31st, just writing “December 31” on the check does not automatically qualify you for a deduction; and pledges aren’t deductible until paid. Donations made with a credit card are deductible as of the date the account is charged, so if you are late in the process, you probably should stick to credit cards.
Keep Good Records: For any cash or property valued at $250 or more, you must have a receipt (bank record, payroll deduction or written communication) identifying the organization, the date and amount of the contribution and a description of the property. For text message donations, flag the telephone bill with the name of the receiving organization, the date of the contribution, and the amount given.