As we enter the high season for charitable giving, there are some notable changes to IRS rules, as well as warnings, about philanthropy amid COVID-19. The CARES Act carved out 2020 as a special year when it comes to taxation and giving. Even if you do not itemize deductions, this year you can take a charitable deduction of up to $300 for cash contributions, (“noncash” items, such as securities or clothing, don’t qualify for this provision) made to qualifying organizations (“those that are religious, charitable, educational, scientific or literary in purpose.”)
Previously, charitable contributions could only be deducted if you itemized, so this is one-year only deal for those who claim the standard deduction. Additionally, the deduction will be “above the line,” which means that it will reduce your adjusted gross income (AGI) dollar for dollar, an important benefit, especially for retirees whose AGI can affect taxability of Social Security benefits and cost of Medicare.
The $300 limit applies to each return, not each person, according to a footnote in a publication by the staff of Congress’s Joint Committee on Taxation. So if you are married filing jointly and do not itemize, you are allowed to deduct “up to a total of $300 in qualified charitable contributions on the joint return.” Itemizers also got a CARES Act benefit—the deductibility cap of cash contributions went from 60 percent of AGI to 100 percent.
If you are over age 70 1/2, you may want to consider another tax efficient means of giving: the Qualified Charitable Distribution (QCD). This technique allows you to make a grant of up to $100,000 directly to an eligible charity from your IRA. While you were not required to take 2020 Required Minimum Distributions, for many who hold most of their wealth in retirement accounts, this rule allows you to give money, without paying tax on the amount of the donation. The trade off is when you use a QCD, you are not entitled to claim a charitable contribution.
Scam warning: Depressing, as it may seem, a pandemic and economic insecurity have combined to put scammers on the prowl. “Criminals seize on every opportunity to exploit bad situations, and this pandemic is no exception,” said IRS Commissioner Chuck Rettig. The agency has warned of a new text scam “that tricks people into disclosing bank account information under the guise of receiving the $1,200 Economic Impact Payment.” Remember: the IRS does not send unsolicited texts or emails; nor does it EVER call with threats of jail or lawsuits, nor does it demand tax payments on gift cards. Don’t click on links claiming to be from the IRS and be wary of suspicious emails and websites.
Fraudsters are also setting up fake charities, with names like nationally known organizations and then using aggressive tactics to wrangle money from you. The IRS warns that legitimate charities do not ask you to wire money or give cash. Ask for the organization’s Employer Identification Number (EIN), which can be used to verify legitimacy with the search tool on IRS.gov.
Odds and ends: Check payments must be postmarked by midnight December 31— just writing “December 31” on the check does not automatically qualify you for a deduction; and pledges aren’t deductible until paid. Donations made with a credit card are deductible as of the date the account is charged.
Finally, be sure to keep good records. Get a receipt (bank record, payroll deduction or written communication) identifying the organization, the date and amount of the contribution and a description of the property. For text message donations, flag the bill with the name of the receiving organization, the date of the contribution, and the amount given.
Jill Schlesinger, CFP, is a CBS News business A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at askjill@jillonmoney.com. Check her website at www.jillonmoney.com.