The Foundation for Peripheral Neuropathy shares some helpful tax tips under the CARES Act.
On March 27, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (Pub. L No. 116-136, the “CARES Act” or “the Act”). The Act is the largest economic stimulus bill in American history. The CARES Act provides direct financial aid to Americans in expanded unemployment insurance, financial support for state and local governments, a loan program for small businesses and not-for-profits, a payroll tax deferral for employers, and financial assistance to small businesses and certain industries. The CARES Act includes two tax provisions that may be of interest, discussed below.
“Above-the-Line” Charitable Deduction
The 2017 Tax Cut and Jobs Act substantially increased the standard deduction for individual taxpayers, in the process making millions of taxpayers ineligible to claim itemized deductions on their federal tax returns. While the jury is still out on the overall impact of this change on charitable giving, the CARES Act provides modest, temporary relief from the change. Specifically, the new law allows an “above-the-line” deduction of up to $300 for charitable contributions. This change applies to the taxpayer’s total charitable contributions and only for those made in 2020 (claimed on returns filed in 2021). The Act also increases the percentage of adjusted gross income limitation for itemizers to 100%.
Temporary Relief for Minimum Distribution Requirements for Retirement Plans and IRAs
Under longstanding tax rules, once persons reach age 70 ½ in a year, they are generally required to receive required minimum distributions (“RMDs”) from their IRAs. Fortunately, the law also allows such distributions to be donated directly to qualified charitable organizations such as the Foundation for Peripheral Neuropathy – and excluded from the taxable income of the IRA owner, up to $100,000 in the year year. (See “IRA Charitable Rollover” page on the FPN website under “Ways to Give”.)
The CARES Act provides for 2020 RMD distributions to be waived for defined contribution plans and IRAs due to the volatile financial markets. The waiver includes 2020 RMD payments for individuals who already are receiving them (e.g., attained 70 ½ before 2019), and individuals who have a required beginning date in 2020 (both the 2020 RMD payment and the 2019 RMD payment to the extent it was not made by December 31, 2019 – e.g., by a person who turned age 70 ½ in 2019).
The CARES Act provision relieves IRA owners from having to sell investments in this volatile market to make 2020 RMDs. However, the IRA Charitable Rollover is still available for 2020 RMDs for those persons who want to use their IRAs as part of their charitable giving program.