It has been quite a year. In 2020, we have had a once-in-a-century pandemic coupled with one of the worst, if not the worst, economic downturns in a century. Indeed, the economic conditions and worldwide health crisis motivated Congress to pass the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in March of 2020. The conditions of 2020, and the passage of the CARES Act, make this a unique year when it comes to dealing with your year-end financial planning.
In this article, we are going to answer some frequently asked questions about year-end charitable gifting for 2020. If, after reading this article, you have additional questions on gifting, then we welcome you to contact the lawyers in West Palm Beach, Florida at Doane & Doane, PA. Call today at 561-656-0200 or fill out our online contact form.
Why Is 2020 Different from Other Years with Regard to Charitable Gifting?
Bottom line, the CARES Act was a game-changer for 2020. The CARES Act changed the tax rules temporarily on a number of fronts for both individuals and businesses. With regard to charitable giving in particular, the CARES Act included two important provisions to create an incentive to give to charity.
1. Allowing any person to take a $300 deduction for charitable gifts regardless of whether they itemize their deductions.
2. Raising the limit on the deductions you could take for charitable giving.
Specifically, on the second provision, taxpayers could normally claim up to 60 percent of their Adjusted Gross Income for charitable donations when giving cash to public charities. Under the CARES Act, however, taxpayers are permitted to claim up to 100 percent of their Adjusted Gross Income for charitable donations. That means that, in 2020, if your Adjusted Gross Income is $100,000, and you give $100,000 to charity, you can deduct that entire amount rather than just $60,000.
This increased limit on deductions for charity in 2020 is, first and foremost, a marvelous way to incentivize people to give to charity when it is needed most during this terrible pandemic. Yet, it is also helpful with regard to estate planning particularly if you had a large income tax event this year.
For example, if you changed a traditional IRA into a ROTH IRA, that could be a significant taxable event. However, you can offset that income you realized from the IRA conversion by giving the income as a charitable gift. In addition, if you had substantial capital gains in 2020, by selling a house or business, the deduction you receive from charitable giving could offset the capital gains tax you would otherwise pay.
In short, year-end charitable giving is more important than ever because of the great need in our country due to the pandemic. Also, the CARES Act has provided some avenues in which charitable giving is more attractive than in prior years.
Will the Election Impact Choices on Charitable Gifting?
There is a double-edged sword problem when it comes to choices on charitable giving with the recent election of President-elect Biden.
On the one hand, if you have some income from selling an asset or other capital gains in 2020, it might make sense to take advantage of the current charitable gift deduction now to offset that income.
On the other hand, President-elect Biden has proposed an increase in the tax rate on individuals with an income higher than $400,000 per year, and an increase on capital gains taxes for those with an income over $1,000,000 per year. Thus, some might be thinking about waiting to take advantage of charitable giving deductions in 2021 because of the possible higher tax rates.
In sum, whether to increase your charitable gifting at year-end or defer your giving until next year really depends upon your personal situation. In that regard, you will want to get some sound advice from experienced estate planning lawyers in Palm Beach, Florida.
What About Creating a Charitable Remainder Trust?
The election of President-elect Biden could have a large impact on the use of charitable remainder trusts. Charitable remainder trusts are generally used to avoid income taxes on the sale of an investment, because they not only have the benefit of avoiding income taxes, but they provide a stream of money for the term of the trust. Thus, if income taxes increase in the next year due to changes in tax policy, charitable remainder trusts may become more popular vehicles to minimize tax liability.
As we said, 2020 has been a unique year in many ways, including with regard to tax policy. Accordingly, before the year is out, you may want to consider speaking with a seasoned estate and tax planning lawyer in Palm Beach, Florida.
Get the Help of a Tax and Estate Lawyer at Doane & Doane Today
Founded in 2003 by husband and wife legal team, Randell C. Doane and Rebecca G. Doane, Doane & Doane provides legal and financial services to families, individuals, and businesses throughout Southeast Florida.
Estate planning is about much more than just giving away property. It is an act of love and kindness, with the ultimate goal of providing for the future financial security of your loved one. At Doane & Doane, our tax and estate professionals help people plan for retirement, make provisions for loved ones, figure out future child support, and minimize tax liability. Experienced wills and trusts attorneys know which tools to use to get the best results for their clients. Our lawyers can help you determine which tools are best suited to your specific circumstances.
When it comes to probate matters, such as the formal administration of an estate, Florida fiduciaries seek the assistance of the attorneys at Doane & Doane, P.A. to administer and manage their trusts and estates. Notably, the founding partners of Doane & Doane are board-certified West Palm Beach Probate Attorneys. With the additional advantage of certified public accountancy in their backgrounds, they present a unique combination of skills and experience which enables them to effectively settle, administer, and manage clients’ trusts and estates.
Since the day we opened our doors, we have worked hard to earn a reputation as one of the region’s most prominent tax and estate planning law firms in Palm Beach County, Florida. Our dynamic team includes the firm’s founding partners, experienced associate attorneys, and an outstanding team of paralegals, legal assistants, and support