New Charitable Contribution Rules 2020

Posted on: 6 . 1 . 2021

Charitable Contributions

Nonitemizers can claim a deduction

The CARES Act makes two significant changes to the rules governing charitable deductions for individuals.

Individuals will be able to claim a $300 above-the-line deduction for cash contributions made to public charities in 2020. This rule effectively allows a limited charitable deduction to any taxpayer claiming the standard deduction. For this deduction, married taxpayers who file a joint return are considered one taxpayer and are limited to $300.

For individuals, the limitation on charitable deductions that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made to public charities in 2020. Instead, an individual’s qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 is required. Note: This higher limit does not apply to donations to private foundations or donor-advised funds.

Important Due Dates

Recent legislation changes some IRA rules

How does this affect you?

The CARES Act suspended the required minimum distribution (RMD) rules for 2020. This means any RMD a taxpayer would have been required to make before Dec. 31, 2020, as well as any RMD required to be made by April 1, 2020, based on meeting the required beginning date in 2019, is not required. However, if the RMD due on April 1, 2020, was made before Jan. 1, 2020, it may not be rolled over or redeposited.

If you received distributions from your IRA in 2020, you might be able to spread the tax over the course of three years if you were diagnosed with coronavirus, if your spouse or dependent was diagnosed with coronavirus or if you experienced adverse financial consequences while being quarantined, furloughed, laid off or had work hours reduced; were unable to work due to lack of child care because of the disease; or a business you operated closed or had reduced hours due to the pandemic.

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) also made changes to the RMD rules, including raising the RMD to age 72 for individuals who had not yet attained age 70-1/2 by Dec. 31, 2019, and limiting the type of beneficiaries who can continue to receive RMDs over the beneficiary’s life expectancy. “Stretch IRAs” are eliminated for nonspouse beneficiaries who may no longer “stretch” inherited IRA distributions over their lifetime. Distributions must be made within 10 years of the IRA owner’s death.

The additional 10% tax on early distributions from IRAs and defined contribution plans such as a 401(k) is waived for distributions made between Jan. 1 and Dec. 31, 2020, if you or a family member was infected with COVID-19 or were economically harmed by COVID-19. Penalty-free distributions are limited to $100,000 and, subject to plan guidelines, may be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless you elect to not have the three-year spread apply.

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