Tax Smart Giving Strategies and the CARES Act

Like you, the American Red Cross of Alaska is adapting and changing in response to the COVID-19 pandemic and accompanying economic uncertainty. We are grateful for the generous support our donors have provided for our work over the years. As we adapt to our new reality, we would like to bring new tax rules for charitable giving included in the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act to your attention. 

You may deduct gifts of cash to most public charities to offset as much as 100 percent of your income!  For the 2020 tax year only, you may deduct cash contributions to the American Red Cross and most other public charities to offset up to 100 percent of your income. Ordinarily, the income tax charitable deduction for cash gifts is limited to 60 percent of your income. This 100 percent limit allows especially generous donors to reduce their 2020 federal income tax to zero. If you are even more generous, you can carry forward unused cash contribution deductions for up to five years. Contributions to donor advised funds or supporting organizations are not eligible for this deduction. Your ability to deduct up to 100 percent of your income with cash gifts is reduced by your gifts of appreciated assets such as publicly traded securities and real estate.  That means your charitable deductions in 2020 cannot exceed 100 percent of your income, but you may be able to carry unused charitable deductions forward to future years. 

It may not be the tax-wise choice to deduct up to 100 percent of your income.  Because federal income tax rates are progressive, it is not a given that it will be to your advantage to deduct 100 percent of your cash contributions in 2020. Check with your financial or other advisors to determine whether the 100 percent deduction makes sense for your specific circumstances. 

If you don’t itemize, you may reduce your taxable income by $300 for your charitable contributions in 2020.  If you do not itemize your deductions in 2020, both single and married joint filers are allowed an “above the line” adjustment that deducts up to a total of $300 for charitable contributions of cash to public charities. 

Required minimum distributions from retirement plans are waived for 2020.  Most required minimum distributions from retirement plans have been eliminated for 2020. Check with your financial advisor to see how this temporary rule will apply to you. Minimum distributions that have already started are still required from some defined benefit pension plans, but some required minimum distributions that would have started in 2020 may not have to start until 2021. 

Qualified charitable distributions are still a great way if you are 7) and a half years of age or older to make contributions.  If you are 70 and a a half years of age or older, a qualified charitable distribution (“QCD” or “IRA charitable rollover”) allows you to make a tax-free gift of up to $100,000 to the Red Cross from your IRA. While the benefit of using a QCD to satisfy your required minimum distribution has been waived for 2020, a qualified charitable distribution remains a great way to make tax advantageous contributions, especially if you don’t itemize your deductions. 

The CARES Act, which was necessary to address the far-reaching effects of the COVID-19 pandemic, provides additional tax incentives to encourage charitable giving. You have important priorities for your family and loved ones, and we know that their health and financial well-being come first. When you are ready, we will be here to help you shape a charitable gift plan that suits your needs and allows you to keep helping with our important work.  Please contact Carol Eames at Carol.Eames@redcross.org or call (503) 502-5877 to learn about the many ways you can support the American Red Cross. 

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