The Cares Act
I want to highlight one of the perks of the Cares Act that I feel is not getting enough attention: the increase in charitable giving limits.
The Cares Act removed the 60% limit on federal tax deduction, so in 2020, you can give 100% of your income away. In other words, in 2019, if you gave 100% of your income away, you needed to pay federal taxes on 40% of your income that you did not keep. But in 2020, you can deduct 100% of your income.
For the business person seeking an exit from your business and hoping to give away a substantial amount, capital gains are includable in the gross income that can be offset by charity in 2020.
If you are planning to give a substantial amount of your income away in 2020, you might consider the following:
- in order to qualify for the deduction, you have to give cash to public charities, not including donor advised funds (DAFs). The 60% rule still applies to DAFs (which can be 50% in some cases, particularly if any portion of your giving is to a private foundation) and the 30% rule still applies to private foundations in 2020.
- you still owe fica and medicare taxes on your salary/gross income; plan for this.
- states like MA taxes on gross income, so you owe taxes on all the amounts you give away; plan for this.
- you still owe property and local taxes; these vary based on where you live and normally don't allow for charitable deductions.
This message is not tax or legal advice and I am not a tax advisor, so please consult with your own tax advisor if you would like to learn more.