Charitable Contribution Deductions
Generally, taxpayers who itemize deductions on their federal income tax returns can deduct charitable cash contributions in an amount up to 60% of their adjusted gross income. However, in 2020, the IRS has temporarily suspended limits on qualified charitable contributions and is allowing individuals to deduct up to 100% of their adjusted gross income for the taxable year.
To qualify, the contribution must be (i) in cash; (ii) made to qualified charitable organization (i.e., directly to a charity registered with the IRS and not to a private foundation or donor advised fund); and (iii) made during the 2020 calendar year.
For those clients with charitable intentions, this presents an opportunity for significant income tax savings. This is especially true for those clients anticipating a high tax bill for 2020, whether from a financial windfall due to the sale of assets or another one-time taxable event.
As a result of this suspension to limits on charitable contributions, clients can effectively eliminate all of their taxable income in 2020 by making qualified charitable contributions. In addition, contributions that exceed 100% of adjusted gross income can be carried over for up to five years. This allows clients to bunch what would otherwise be several years’ worth of charitable donations into 2020 in order to take full advantage of the temporary unlimited deduction threshold and maximize tax savings.
David W. Kesner, Charles C. Kingsley, Leonard Leader, Rani Newman Mathura, Carolyn A. Reers, Matthew E. Smith, Arsineh Kazazian, Mary Margaret Colleary, Mi-Hae Kim, Erin D. Nicholls, Kaitlyn A. Pacelli and Beth A. Scharpf contributed to this article.