In 2020, we helped givers take advantage of a 100 percent AGI (adjusted gross income) giving opportunity, as allowed by a lesser-known provision of the CARES Act. The good news is now this beneficial opportunity has been extended through 2021.
If you itemize deductions on your income tax returns, you can deduct qualifying charitable cash gifts up to 100 percent of your AGI this year and may eliminate (or significantly reduce) your federal income taxes.
2 options for how to give
While there are a number of choices for what you can give, how you give them comes down to two options: Cash only or cash plus assets. You can give up to 100 percent of your AGI in cash (60 percent under pre-existing tax law and an additional 40 percent under the CARES Act law). Or you may choose to give a combination of cash and assets (up to 30 percent of your AGI in asset gifts – such as real estate or business interests) and the remaining 70 percent in cash (20 percent under pre-existing law and the additional 50 percent under the CARES Act law).
It’s important to remember that the giving allowed under pre-existing tax law may be given to a donor-advised fund (Giving Fund), as well as churches and charities. However, the additional cash giving allowed under the CARES Act must be given only to churches and charities or Single-Charity Funds.
If you’re interested in making a CARES Act qualifying gift to benefit an organization this year but would like to grant the money over time, you may open a Single-Charity Fund and request that grants be made on the schedule you choose.
To make the most of this unique opportunity, here are five creative ways to get to 100 percent:
First 30 percent in asset gifts
- Business Interests: You can give a portion of your business to charity, whether you are about to sell it or intend to keep and continue to operate it. Giving a portion of your business to charity allows income to flow into your Giving Fund and for you to have what you need to meet your giving goals.
- Real estate: If you own real property and are planning to sell it, you may be able to gift all or a portion of it to NCF, take a tax deduction for the fair-market value of the gift, and have money in your Giving Fund to give to your favorite causes.
- Other appreciated assets: Some givers have valuable assets like oil, gas, or mineral rights, farmland, patents, installment notes, etc. If you have an asset, and you’re wondering if you can give it, now is a great time to ask.
Remaining 70 percent in cash
- Exercising stock options: If you have acquired stock options with your company, you probably know there is a lot of sophisticated strategy to exercising them. It’s important to time it just right, so you don’t have a lot of ordinary income recognition. This year, because of the unique opportunities offered by the extended CARES Act, you may be able to exercise those stock options, make a gift to charity and take a deduction in the amount of the gift up to 100 percent of your AGI.
- Retirement account withdrawals: If you are over 59 1/2 and are certain you have more financial resources than you will need for your retirement and estate planning needs, you may wish to consult your professional advisors about withdrawing excess retirement plan dollars to fund your giving this year. While the withdrawal would be taxable, the subsequent cash gift to charity would provide a deduction that could protect that income from federal income taxes. If you are 72 and you must take required minimum distributions, you may choose to gift that money to your Giving Fund and take a deduction in the amount of the gift.
If you want to learn more about how to maximize your resources with an intentional Giving Strategy, visit ncfgiving.com/strategy.
This should not be construed as legal or tax advice.