The CARES Act created new ways to be generous to public charities, like
Fuller. The second COVID Relief Bill extended a couple key provisions of
the CARES Act into 2021, and in one case, expanded. For those of us who
have a passion and calling for using our resources to help Christ's
ministries, this is the opportunity of a lifetime.
1. An expansion of the universal charitable deduction for cash gifts
The universal charitable deduction has been extended and upgraded.
The new deduction is $300 for single filers and $600 for married
couples filing jointly.
This is available to taxpayers who take the standard deduction. This tax
incentive is available for cash gifts to qualified charities like Fuller,
but not to supporting organizations or donor advised funds.
2. An extension of the cap on deductions for cash contributions
The CARES Act lifted the cap on annual contributions for those who itemize,
increasing it from 60% to 100% of AGI for 2020, and now for 2021. Any excess contributions available can
be carried over to the next five years. For corporations, the law raised
the annual deductible charitable contribution limit from 10% to 25% of taxable income.
What's the same?
Anyone can still give stocks, real estate, or business interests owned for
more than one year to Fuller, receive a fair market value deduction against
30% of their AGI, and not pay taxes on capital gains.
Those over age 70 ½ can make up to $100,000 in Qualified Charitable
Distributions from an IRA account, which does not count as income.
What's the benefit to you?
The 100% income tax deduction for cash gifts allows you to gift assets that
are normally out of reach. Consider some of the following unique giving
strategies under the CARES Act.
- 1. Sell unwanted assets
Some assets are poor candidates for your charitable giving. The deduction
for donating stocks, bonds and real estate held for less than one year is
limited to your cost basis. Real estate with environmental problems or debt
often cannot be gifted at all. A potentially simple solution is to sell the
property and donate the proceeds. Because you can donate 100% of your income
in 2021, your cash gift can have a greater impact!
- 2. Consider retirement assets for giving.
If you are over 70 ½ years old, you can donate up to $100,000 per year
directly to charity from an IRA account. These funds are not taxed as a
withdrawal and count toward any Required Minimum Distribution. However, any
other withdrawal from IRAs, 401(k) plans, pension, or profit-sharing plans
is almost always taxable income. But for this year, anyone who can withdraw
assets from any qualified plan without a penalty, typically anyone over age
59 ½, can take those IRA, 401(k) or pension plan funds and donate them
to charity. The withdrawal increases your income, but since the cash donation is fully deductible up to your AGI, the donation may offset some of that increase in your income.
- 3. Exercise employment-based stock options.
Many employees at publicly traded companies have significant compensation
in the form of non-qualified stock options. Under the tax laws, these
contract rights are usually not assets that can be donated before being
exercised. The holder's only option is to exercise at which point the
"gain," the amount in excess of any required payments, is taxable as
ordinary income or capital gains. In the 2021 tax year, since 100% of any
charitable cash donations are deductible for federal income tax purposes, here
too you can exercise as many options as you want and make an offsetting cash donation
- 4. Accelerate giving through a Named Endowment Fund (NEF).
Donors who anticipate making substantial gifts to Fuller for the next several years can front-load that giving in 2021 to take advantage of the increased AGI limitation and save taxes. By accelerating anticipated future giving into 2021, you could plan for potentially lower AGI limitations in future years. Another advantage of your own NEF is that those funds will be invested and any growth in assets will increase future giving amounts.