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Year-end Tax Planning, 2020 - Charitable Gifts

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Start early this year on understanding your choices 

The CARES Act, enacted in response to the coronavirus pandemic, has created some additional opportunities related to the tax treatment of charitable gifts.  Take some time to consider how you might benefit from any of these changes.

The conventional rule of thumb for year-end tax planning has been to defer income and accelerate deductions. The 2017 tax reform hit that thinking with a one-two-three punch, doubling the standard deduction while cancelling some itemized deductions and capping the deduction for state and local taxes at $10,000. The result was that the number of taxpayers who itemize deductions fell by almost two-thirds from 2017 to 2018, according to a recent analysis. Nearly 90% of taxpayers now claim the standard deduction. 

However, there are still choices that taxpayers may make, especially in the above-the-line area of the Form 1040, before they get to adjusted gross income. 

Charitable gifts 

For those who are near the boundary of the standard deduction, one strategy to consider is making large charitable gifts every other year. In the year without a gift, the standard deduction takes over. In this way, a maximum tax benefit may be secured for all of one’s charitable gifts. 

The CARES Act, enacted in response to the coronavirus pandemic, made two important changes to the tax treatment of charitable gifts this year. 

No itemizing required for small gifts. Up to $300 in cash charitable gifts may be taken as an adjustment to gross income by taxpayers who do not itemize. Charities would like to make this rule permanent, with a higher cap, but that is a story for another day. 

Higher ceiling for large gifts. The normal rule after 2017 has been that the deduction for charitable giving is limited to 60% of adjusted gross income. The limit has been boosted to 100% for cash gifts this year. 

Special rule for older taxpayers. Another important rule for those who are 70½ and older is that they may make direct charitable gifts from their IRAs, up to $100,000. This rule was not affected by the CARES Act. Such gifts satisfy the required minimum distribution rules (those are suspended for 2020). The important takeaway is that charitable gifts from an IRA are not included in income, and the taxpayer is still entitled to the full standard deduction. 


The information contained herein does not constitute legal, tax or investment advice by Country Club Trust Company. For legal, tax or investment advice, the services of a competent professional person or professional organization should be sought. Trust services and investments are not FDIC insured, are not guaranteed by the Trust Company or any Trust Company affiliate, and may lose value. Past performance is no guarantee of future results.

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