2021 Cares Act Charitable Considerations
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On December 27, 2020, another stimulus package was signed into law to help combat the far-reaching impacts of COVID-19. In many ways, this bill extends the charitable tax incentives enacted by the Coronavirus Aid, Relief and Economic Security (CARES) Act back in March 2020, but it also provides some additional provisions.
100% AGI (Individuals) – The adjusted gross income (AGI) limit for cash contributions to qualifying public charities remains increased for individual donors. For cash contributions made in 2021, you can elect to deduct up to 100 percent of your AGI (formerly 60 percent prior to the CARES Act).
25% AGI (Corporate) – The AGI limit for cash contributions also remains increased for corporate donors. In 2021, corporations can deduct up to 25 percent of taxable income (formerly 10 percent prior to the CARES Act).
$300 “Above-the-Line” Deduction – The CARES Act allowed for an additional, “above-the-line” deduction for charitable gifts made in cash of up to $300. This provision is extended into 2021 for taxpayers filing single/separately. New in 2021 is an additional “above-the-line” deduction for those married filing jointly. Joint filers (who aren’t itemizing) will be allowed to take an above-the-line deduction of up to $600 in cash contributions to charity this year.
NOTE: Public Charities only – These incentives apply only to cash contributions to public charities and do not apply to contributions to supporting organizations or public charities that sponsor donor-advised funds.
IRA QCD – The CARES Act did not change the rules around the QCD, which allows individuals over 70½ years old to donate up to $100,000 in IRA assets directly to charity1 annually, without taking the distribution into taxable income.
However, remember that under the CARES Act an individual can elect to deduct 100 percent of their AGI for cash charitable contributions. This effectively affords individuals over 59½ years old the benefits similar to a QCD; they can take a cash distribution from their IRA, contribute the cash to charity, and may completely offset tax attributable to the distribution by taking a charitable deduction in an amount up to 100 percent of their AGI for the tax year.
If you’re planning a large donation in 2021, this may be a smart strategy as long as you are between the ages of 59½ and 70½ and are not dependent on existing retirement funds.