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Charitable Giving in 2020

Ed Slott discusses some of the tax implications that are unique to this year.

Christine Benz: Hi, I'm Christine Benz for Morningstar. Owing to the COVID-19 pandemic, charitable giving in 2020 is going to look a little bit different than in years past. Joining me to discuss how things are changing and how that might affect your charitable giving strategy is tax- and retirement-planning expert, Ed Slott.

Ed, thank you so much for being here.

Ed Slott: Great to be back, as always. Thanks, Christine.

Benz: Well, it's great to have you here. Let's talk about this new charitable deduction that is available just for 2020. It's not big, but it is something that's available even for people who don't itemize their taxes. Let's talk about that small deduction.

Slott: A $300 [deduction]. Now, when you say it's only available for people who don't itemize, that's 90% of the people. Most people don't itemize anymore after the Tax Cuts and Jobs Act raised the standard deduction, and that's particularly true for the people that are 65 and over and get the extra standard deduction. So, what's happening is, most people are still giving, and they're probably giving more so than ever this year, but for a few years now they haven't been getting the benefit, the tax benefit, of the giving that they're doing because they don't itemize, so there's no deduction. So, this $300 will help a bit.

I have a feeling this is one of those items whether people give or not, everybody is going to put $300 on their tax return, because it's on there and it's what we call above the line, it reduces adjusted gross income, everybody gets it. Now, technically, you have to give the $300 to get it, but I think most people give that amount. Or if you don't, maybe you should and take the exclusion from income. It's better than a deduction. Itemized deduction is after adjusted gross income. This reduces adjusted gross income. So, it's better than a deduction.

Benz: One question mark related to this deduction was whether married couples could double it. So, if I'm part of a married couple filing jointly, could I take $600? What's your take on that question?

Slott: There's no take. The answer is no. It's $300. It's clear in the Joint Committee on Taxation. In fact, you told me you were going to ask this, so I looked it up. In the report--you've got to go to the footnotes, very small writing--but in the report here, this is the Joint Committee on Taxation, because this question has come up. In fact, I saw a story, I think in The Wall Street Journal a couple of weeks ago, maybe last week, and they said they're not sure, they interviewed people. But it is sure. In the fine print here, you can almost see it on camera here in the very fine print, in the smallest writing, it says the $300 limit applies to the tax-filing unit. Then they go further and make it clear. They say, "Thus, for example, married taxpayers who file a joint return and do not elect to itemize are allowed to deduct up to a total of $300 on a joint return." So, there's the chapter and verse. That's behind the law, you know, the Joint Committee interpretation. So, it's $300. But that question has come up because in the CARES Act it just said each person can do $300. So, the question, your question, came up naturally: What about two people on one return?

Benz: How about itemizers, people who are itemizing? There's no double-dipping, right? If I'm an itemizer, I can't also take this $300 deduction?

Slott: It's clear this is for non-itemizers, which again is most people.

Benz: So, for people who do itemize the CARES Act increases the limit on how much they are eligible to give. Can you talk about that?

Slott: You can give up to 100% of your income now. There used to be a 60% limitation. Now, this is for big givers. Most people don't give everything they earn, but some do. And you may find this year there are a lot of those wealthier people maybe that want to do extra giving, given our times today. So, they can really push that a lot more. They can do up to 100% of their AGI, adjusted gross income. There's no limitation there.

Benz: OK. But donor-advised funds, people who use those, you can't ...

Slott: No, no. I'm glad you brought that up. It's just a cash gift, not supporting organization, donor-advised funds, and stuff like that. And the same thing with the $300: cash gifts.

Benz: OK, good to know. One thing I want to ask about is the qualified charitable distribution, the QCD. For many retirees, the QCD goes hand in hand with required minimum distributions, which are on hold for 2020. So, the question is, should retirees still do the QCD even though they are not subject to RMDs this year?

Slott: Absolutely. The only negative with QCDs is that it doesn't apply to enough people. It only applies to IRA owners or IRA beneficiaries--not plans, not 401(k)s--IRA owners or IRA beneficiaries who are 70 and a half years old. Now, it's interesting, the SECURE Act raised the RMD age, the required minimum distribution age, to 72, but the QCD age did not change. So, you have this little gap, and then you mentioned the CARES Act eliminated RMDs all the way for 2020, so the question has been coming up, "Well, even if I would have been subject to RMDs but now I'm not, should I do the QCD anyway?" And my answer is, absolutely. If you're giving anyway and you qualify, age 70.5 from an IRA, this is the most tax-efficient way to give. Because if you're giving with a regular check like we just talked about and you don't itemize, you get no tax benefit out of that deduction. By having funds even if you're not subject to RMDs, if you're still giving to charity and you qualify for the QCD, do the direct transfer from the IRA to the charity with the giving you were going to do anyway and it's excluded from income--again, better than a deduction.

Benz: Ed, this is really helpful. A lot of need out there this year and a lot of people with charitable intent. This is a great recap of what's going on this year. Thank you so much for being here.

Slott: Thanks, Christine.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.