Legislative Updates to Charitable Giving
May 29, 2020 

This post is a continuation of our series on recent legislative changes, with an update on charitable giving.  There were important changes made to the tax rules on charitable gifts both in the 2017 Tax Cuts and Jobs Act ( “The 2017 Tax Act”) and in the CARES Act this year:

  • The 2017 Tax Act made some direct changes to charitable giving (like eliminating the phase-out of charitable deductions for high earners), but the most relevant rule for most people was an indirect change:
    • Prior to 2018, most of our clients itemized their deductions, since they usually added up to more than the standard deduction. However, the 2017 Act both limited itemization and approximately doubled the standard deduction, to the point where the standard deduction is now often the better choice.  This means that things clients used to itemize and deduct – like charitable gifts – are now ignored altogether in the calculation for those who take the standard deduction.
    • A strategy that’s becoming increasingly common for charitably-inclined clients is to bundle charitable gifts into “on” years and “off” years. Taxes are itemized in the “on” years, and the standard deduction is used in the “off” years.  For example, you may usually give to your favorite charities during the holidays each year, but if you wait until January every other year, you’ll have years with double gifting and other years with no gifting.  The years with double gifting may itemize to more than the standard deduction and thereby lower your tax bill.
    • The above strategy can be even easier to do with a Donor Advised Fund – where you make the contribution when it’s optimal from a tax perspective, and then make your donations later to your favorite charities from the fund. You can then bundle the contributions into 3 year intervals or longer.
  • The CARES act made a few additional direct changes to the tax rules around charitable giving:
    • The CARES Act allows deductions up to $300 “above the line” for charitable gifts. While the amount isn’t large, it is an easy additional deduction for people who do not itemize deductions (see above)  This is for 2020 only – you can take a standard deduction and still deduct an additional $300 for a cash charitable gift (it’s the same amount for singles or married couples).
    • The CARES act had some other charitable giving provisions too, like being able to deduct donations up to 100% of AGI (up from the usual 60% of AGI), but these will apply to a smaller percentage of people.

Please reach out to us if you have questions about Donor Advised Funds, or any of the other items in this email update.  We hope you all stay healthy and stay positive.  And we look forward to being able to speak with you in person again soon.