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Tax Benefits of the CARES and SECURE Acts

By Pam Davee
Director of Philanthropy
May 12, 2020

In response to the coronavirus pandemic, Congress recently enacted several changes to tax law.

The inclusion of an expanded charitable giving incentive in the CARES Act is a critical acknowledgement that the work of nonprofits like Friends of the Columbia Gorge are essential services. Indeed, natural places like the Columbia Gorge are a vital source of peace during difficult times like these and the conservation work you make possible will benefit generations to come.

With that in mind, let’s dive a little deeper into what these changes might mean for you, and how you can best support Gorge protection work.
 

New tax incentives for charitable giving

The CARES Act allows taxpayers who take the standard deduction to make up to $300 of charitable contributions this year. That means that even if you do not itemize, when you make a gift to Friends you will be able to take a deduction up to $300 to reduce your tax liability.

Furthermore, for the 2020 tax year, the new law allows for cash contributions to qualified charities such as Friends of the Columbia Gorge to be deducted up to 100% of your adjusted gross income for the 2020 calendar year. Previously the deduction was capped at 60% of annual income.

Additionally, corporate taxpayers can now deduct up to 25% (previously 1%) of their taxable income for any cash contributions made to qualified charitable organizations.
 

You can contribute to your IRA longer

Previously, you could not contribute to a traditional IRA after reaching the age of 70½. However, more and more people are working past that age. The SECURE Act, passed in December, repeals this age limitation and allows you more time to save.
 

Required minimum distributions are temporarily suspended

The SECURE Act changed the age at which you must start taking required minimum distributions (RMDs) from your retirement account from 70½ to 72 for those who were born July 1, 1949, or later.

However, the recently passed CARES Act suspends all required minimum distributions until 2021.

Thus, if you are 70½ or older, even with your RMDs being suspended this year, you can still make a gift from your IRA to Friends of the Columbia Gorge. Making a qualified charitable distribution this year will allow you to direct up to $100,000 from your IRA to Gorge protection work.
 

IRA beneficiary rules have changed

Prior to the SECURE Act, beneficiaries could take distributions throughout their lives, but this option has since been repealed for non-spousal IRA beneficiaries. Now, if you benefit your children with your IRA, they will only have 10 years to withdraw the entire amount and will pay a higher tax rate.

In response, you may consider funding a testamentary charitable gift annuity or charitable remainder unitrust with your IRA balance. Those plans can spread out the taxes on their inheritance and provide lifetime payments to your heirs.
 

Why a gift from your IRA is still a smart idea

If you are 70½ or older, you can transfer any amount up to $100,000 per year directly to a qualified charitable organization like Friends without paying income tax on the distribution. While gifts to donor advised funds aren’t eligible, qualified charitable distributions up to $100,000 can be made. The transfer generates neither taxable income nor a tax deduction, so you benefit even if you do not itemize your deductions.

Since the gift does not count as income, it can reduce your annual income level. This may help lower your Medicare premiums and decrease the amount of Social Security that is subject to tax.

Your gift will also be put to use today, allowing you to see the difference you’re making right now.
 

Your legacy and charitable goals

We are deeply grateful for those of you who have made a lasting commitment to conservation of the Columbia Gorge through your will or estate plan. Please contact me at pam@gorgefriends.org or 971-634-2036 to discuss your options further. I would love to speak with you!

Disclaimer: The purpose of this article is to provide general gift, estate, and financial planning information. As I am not a financial professional, please check with your financial adviser before you make any decisions affecting your investments or financial planning.