We are all living through the challenges of a Coronavirus world – praying for sick friends, learning new ways to shop and, most importantly, arranging our lives so that our children can still attend school! In the midst of such challenges, we are blessed to be part of the Berean community. Surprisingly, we’ve also been blessed by a new tax law!
Under the CARES Act, which was just adopted this past March, cash donations to Berean Christian High School or other public charities are deductible – for this year only – up to the full amount of our otherwise taxable income. In other words, we can take a federal charitable deduction against 100% of our income. For those of us who are both Christ followers with a passion for using our resources to help others, and have substantial income or assets, this is the giving opportunity of a lifetime. Detailed information on this opportunity – with short, helpful videos – can be found on ncfcalifornia.com. But here’s the story in brief.
What deductions can you take this year?
Under the CARES Act, you can take a charitable deduction against 100% of your 2020 income for federal tax purposes by making the donation in cash, to a regular public charity, before the end of the year. Such “qualified donations” are deductible up to the full amount of your income from all sources including salaries, dividends and interest and capital gains. The only reduction is for any charitable deductions you are already taking.
All the other charitable deduction rules for giving stocks or real estate or for making Qualified Charitable Distributions from IRA accounts remain the same. You can still donate stocks held for more than one year and take a fair market value deduction... and pay no taxes on the capital gains. The same thing is true for real estate. But there are at least three types of giving that will work better this year with a 100% deduction.
1. Sell Anything!
Some assets are poor candidates for charitable giving. Stocks held for less than one year are only deductible at cost. Real estate with environmental problems often can’t be gifted at all as the charities can’t handle the risks. But in all those situations, if you can sell the asset you can then donate as much of your gains as you wish. No matter how much a sale increases your income, your cash gift will all be deductible!.
2. Access Retirement Assets for Giving
Under the regular rules, anyone over 70 ½ can donate up to $100,000 per year directly to charity from an IRA account and those funds are not taxed as a withdrawal. They also count toward any Required Minimum Distribution. But any other withdrawal from IRAs, 401(k) plans, pension, or profit-sharing plans is almost always taxable income.
But for this year, anyone who can withdraw assets from any qualified plan without a penalty, typically anyone over age 59 ½, can take those IRA, 401(k) or pension plan funds and donate them to charity. The withdrawal still increases your income, but since the donation is fully deductible, your donation offsets the increased income and you effectively achieve a federal tax-free withdrawal of such proceeds!
3. Exercise Employment-Based Stock Options
Finally, Many employees at publicly traded companies - especially in the tech industries - have significant compensation in the form of non-qualified stock options or Restricted Share Units. Under the tax laws, these contract rights are not assets that can be donated to charity. The holder’s only option is to exercise at which point the “gain,” the amount in excess of any required payments, is taxable as ordinary income or capital gains.
In the 2020 tax year, since 100% of any charitable donations are deductible for federal income tax purposes, here too you can exercise as many options as you want and donate all the gains to charity. Your donation offsets your option exercise income and you effectively achieve a federally tax-free option exercise!
For more information, feel free to email Bob Fry. Bob works with the National Christian Foundation of California and is helping Berean Christian High School with asset based giving. You can also download Opportunity of a Lifetime from ncfcalifornia.com.
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