New Laws and Charitable Giving
$1.9 Trillion American Rescue Plan Will Affect Giving Only Indirectly
On March 11, 2021, President Biden signed the American Rescue Plan (ARP), a $1.9 trillion package of initiatives aimed at facilitating the U.S.’s recovery from the health and economic effects of the COVID-19 pandemic. The ARP provides economic assistance to individuals in a variety of ways, primarily to Americans making less than $75,000/year (or couples making less than $150,000/year). It also extends the Paycheck Protection Program for businesses, creates block grants to help schools reopen and expand childcare, provides aid to state and local government, and much more.
What the ARP does not contain is any provision directly related to charitable contributions. For example, it does not extend further the charitable deduction for non-itemizers or the 100% of AGI limit election available for gifts of cash to public charities, both of which are set to expire at the end of 2021. Rather, the ARP’s effect on gift planning will depend on how much it hastens an end to the pandemic and catalyzes an economic recovery. The sooner those two things happen, the more confident donors will feel about their future and the more readily they will make outright and planned gifts.
We expect that Congress and the Biden Administration will turn their attention to a tax bill sometime in the next several months that, if passed, will assuredly have important implications for fundraising. Keep your eyes open for tax talk in Washington. We will be.
Consolidated Appropriations Act of 2021 Gives Special Tax Incentives for Giving
Congress has provided several economic incentives to help address the far-reaching effects of the COVID-19 pandemic, including additional tax incentives to encourage charitable giving. We would like to bring to your attention temporary tax rules for charitable giving enacted by Congress late last year [signed December 27, 2020] as a part of the Consolidated Appropriations Act of 2021. Note that these incentives are temporary and are scheduled to expire at the end of 2021.
You may deduct gifts of cash to most public charities to offset as much as 100% of your income! For the 2021 tax year, you may deduct cash contributions to Fenway School of Psychology and most other public charities to offset up to 100% of your income. Ordinarily, the income tax charitable deduction for cash gifts is limited to 60% of your income. This 100% limit allows especially generous donors to reduce their federal income tax to zero. If you are even more generous, you can carry forward unused cash contribution deductions for up to five years.
It may not be the tax-wise choice to deduct up to 100% 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% of your cash contributions. Check with your financial or other advisors to determine whether the 100% 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 2021. If you do not itemize your deductions, you can still reduce your taxable income by up to $300 (or $600 for married couples filing jointly) for contributions of cash to public charities using an “above the line” adjustment to reduce your taxable income.
Qualified charitable distributions are still a great way to make contributions if you are 70½ 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 Fenway School of Psychology from your IRA if you are 70½ or older. A qualified charitable distribution is a great way to make tax advantageous contributions, especially if you don’t itemize your deductions. [The CARES Act suspension of the required minimum distribution from most retirement plans for 2020 does not appear to have been extended into 2021.]
You have important priorities for your family and loved ones, and we know that their health and financial well-being comes 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 Dr. Edwin Price at email@example.com or call (555) 555-5555 to learn about the many ways you can support Fenway School of Psychology.