Whether you are an individual or own a business, donations to non-profits have a bigger impact in 2020. “Individuals who do not itemize, of which there is a growing number due to recent tax code revisions, and married couples who filed jointly can deduct up to $300 per taxpayer, which is $600 for a married couple in annual charitable contributions,” says Kahler. “So that means if they take the standard deduction, they can take an additional $300 or $600 for gifts to a charity. So that serves to reduce their taxable income by that amount. On $600, that could save a person between $70 and maybe $200.”
For folks who do itemize, the cap for charitable giving has been removed. “Typically you’re limited to 60% of your adjusted gross income as a cap for gifts. For example, if you made $100,000, you could give away $60,000 of your income. Anything above that, you couldn’t claim that deduction. This year it’s increased to 100% of adjusted gross income. So that means a person can give away 100% of their income and pay nothing in taxes. For somebody who is charitable and has been wanting to make a large gift, they can, where in the past they had to pay tax on 40% of their income regardless. This year they can eliminate their entire tax bill. So, 2020 is obviously a good year to make charitable gifts to charities.”
Kahler says the timing is good and giving goes beyond the receiver. “Charities are desperately needing additional income this year. For many charities, their source of income has been curtailed drastically. Whether it’s advertising, support that they received, or income from various events. Giving can absolutely be a lifesaver to the charities. And it impacts the economy because charities employ people, and charities are consumers as well. So, it definitely helps the economy.”
IRA giving is another approach. “People over 70 ½ can give directly out of their IRAs,” says Kahler. “And it’s a tax-free gift to the giver. They can give up to $100,000. It’s called a QCD, Qualified Charitable Distribution, and they don’t have to take it from the IRA, pay tax on it and then give it to the charity. They can just give it directly from the IRA to the charity, and there’s no tax due on it.”
Kahler says that the current climate is also favorable for corporations to make gifts to charitable organizations. “What hasn’t been publicized much is the corporate cap was 10% for deductible gifts. A corporation couldn’t deduct anything over 10% of their taxable income. That has been increased this year to 25%.”
Kahler puts the increased corporate cap in perspective. “If your corporation had $1,000,000 of taxable income this year, they can reduce that by $250,000. That’s a two-and-a-half times increase. And what it means is a corporation could give that 25%, or in this case on $1,000,000, $250,000 this year. It would take them two-and-a-half years to accumulate the same taxing. So, they can really make an impact this year on their taxes.”
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