You’re probably looking forward to Thanksgiving, even if it looks a bit different this year or you’re not a big fan of turkey. Whatever your Thanksgiving is like this year, it’s a good time to think about how you express gratitude. Some people donate their time or money to a charitable organization, especially around the holidays. In 2019, Americans gave an estimated $450 billion to U.S. charities[1], and this number was expected to rise in 2020 before the pandemic hit. This year, there are some special opportunities for charitable giving before year-end that you can potentially take advantage of.
Tax-Free Donation Limit Increase for 2020
The CARES Act created special opportunities for charitable giving only for the 2020 tax year. Normally, there is a cap – 60% of a taxpayer’s Adjusted Gross Income (AGI) – on how much someone can donate to charity tax-free. The CARES Act raised this limit to 100% of AGI for the 2020 tax year.[2] Contributions over this amount can be carried forward for five years subject to the usual 60% of AGI limit in those years.[3] There is also a provision that allows single filers who don’t itemize to deduct up to $300 in charitable donations, and married couples filing jointly to deduct up to $600.[4] The deadline to make charitable contributions for 2020 is December 31st, so mark your calendar. Note that these provisions only apply to cash donations and to not donor-advised funds or gifts to 509(a)(3) supporting organizations.[5]
Incorporating a Giving Strategy Within Your Estate Plan
Another potential option for giving is taking advantage of the annual gift tax exclusion limit of $15,000. You don’t have to itemize your taxes to do this. This means you can gift up to $15,000 a year tax-free per person each year.[6] This can be one way to reduce your taxable estate and give to your loved ones during your lifetime. Note that what you give tax-free counts towards your total gift and estate tax exemption limit, which is $11.58 million for individuals and $23.16 million for married couples in 2020.[7]
Watch Out for Scams
Many charities are stepping up to help those in need during the COVID-19 pandemic, but scams have also proliferated. It’s important to make sure you are giving to a legitimate charity, and there are several ways you can do so. One is to research the charity online to check on their reputation. You should also check that it’s not a fake organization with a name very similar to a real charitable one. You can also check the IRS’s Tax Exempt Organization list to see if donations are tax-deductible.
If you’re not sure if your retirement plan is as well orchestrated as your Thanksgiving dinner is, maybe it’s time we talk. Whether you want to give to a charity, retire earlier, or maintain your current lifestyle, we want to help you create a retirement plan that makes you feel thankful and helps to achieve your retirement goals. Schedule a time to meet with us to hear more about your retirement planning options, and have a Happy Thanksgiving!
[1] https://home.treasury.gov/news/press-releases/sm1040
[2] https://www.congress.gov/bill/116th-congress/senate-bill/3548/text#id2086895433d24741b0e50236bb117cff
[3] https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions#:~:text=In%20most%20cases%2C%20the%20amount,not%20subject%20to%20this%20limitation.
[4] (Sec. 2205) https://www.congress.gov/bill/116th-congress/house-bill/748
[5] https://www.forbes.com/sites/rcarson/2020/10/28/how-to-make-sure-every-dollar-you-give-to-charity-counts-in-2020/?sh=3cc1bcf03b67
[6] https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
[7] https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
