Two Major Tax Changes for 2020 Charitable Giving

 

It’s natural to reflect at the close of another calendar year. And after the historic events of 2020, many people aren’t sad to see this year come to an end. At Sente, we’ve paid careful attention to our core values to help see us through 2020, and this December, a specific value is top of mind: Care so Much We Make a Difference. We’re thrilled to have been able to give nearly $50,000 through an employer match campaign to nonprofits in local Sente branch locations this year. We’ve stayed connected and close, despite the remote environment. And we’ve ensured that our clients have continued to receive the very best service in the industry — no matter what the markets (or world) have been doing. 

While this is a natural time of year to consider collective impact, many people also think about personal giving — about 30% of all donations each year happen in December. Many people give at the end of the year to combine supporting causes they care about — especially relevant on the heels of this turbulent year — with a desire to save on taxes. For those lucky enough to be counting their blessings as we wrap 2020, we’re sharing why this is a particularly good time for charitable giving. Thanks to the CARES Act, signed into law in March of this year, there are two ways that year-end giving can work for your taxes this year.

 

1. You can deduct donations even if you don’t itemize your taxes. 

Only in 2020, the CARES Act is allowing a special $300 tax deduction for cash donations to nonprofits. Nearly nine out of ten taxpayers take the standard deduction. In a normal year, however, taxpayers who want to deduct charitable contributions must itemize taxes. The deduction won’t apply after the 2020 tax year unless Congress extends it. More can be found on IRS.gov. 

 

 

2. But if you do itemize, charitable deductibility has significantly increased.

Cash contributions made by individual donors in 2020 can now be deducted up to 100% of your adjusted gross income (AGI). This is an increase from 60% in 2019, and is unique to the CARES Act. Meaning, unless Congress votes to extend it, this change won’t be applicable next year. 

 

As a reminder, the below are still good to consider regardless of the CARES Act:

• Giving appreciated non-cash securities could offer more tax benefits. If you itemize deductions on your taxes, choosing to donate stocks, ETFs or mutual funds held more than one year may offer additional tax benefits compared to cash donations. Donors can potentially eliminate the capital gains tax that would be imposed if they sold the asset and donated the cash proceeds. This could mean that more gets to go to the nonprofit, with less tax pains for the donor.

 

• Consider a bunching strategy. In 2017, tax regulations changed to increase the standard deduction amount but capped many itemized deductions. So if donors find that their year-end contributions may fall below the standard deduction level, it might be beneficial to bunch charitable giving — meaning, combine the gifts that they would have also made in 2021 with their 2020 donations. This packs a bigger punch for the charities receiving donations at the end of a deeply challenging year, too.

 

Before undertaking any charitable giving strategy, we recommend contacting us to discuss your specific situation. We can also give you recommendations for a legal or tax professional.