Is Cash, Once Again, King for Charitable Contributions?

Posted In: COVID-19 Giving Non-Profits

Historically, cash contributions to charity were a terrific way to reduce your taxes. Recently, however, increases in standard deduction amounts and limitations on how much can be deducted relative to one’s Adjusted Gross Income (AGI) have made contributing cash less appealing than contributing appreciated assets, like stock or real estate.

 

This appeal exists because such a donation allows a donor to eliminate paying any tax on the growth of the contributed asset. By negating capital gain exposure (oftentimes significant amounts), the combination of tax deduction and tax avoidance has, in recent years, made these kinds of gifts more attractive to many donors.

 

That was until the recent passing of the CARES Act in late March. Normally, contributing cash subjects a donor to a 60% AGI limitation for deductions. Although that figure is twice as much, per year, as the donation of an appreciated asset (30% AGI limitation), the addition of the tax avoidance for the appreciated asset gift made the total tax benefit to the donor as good, if not better, than donating a cash equivalent. For 2020, however, donors are able to deduct 100% of income. This provision, in an effort to keep donors giving to struggling charities, has the potential to change the giving dynamic for individuals with appreciated assets and a heart to give.

 

What’s more, any deduction amounts not used in the year of contribution due to the limits may be carried forward for five years. What type of donation would maximize your tax savings in 2020?  Answer: it depends. It depends on your income, the amount of your contribution, and the cost basis of your appreciated asset. The chart below will help you decide what type of donation will maximize your tax savings in 2020.

 

 

*Assumptions: Married Filing Jointly $10,000 of Other Itemized Deductions

 

Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purposes of avoiding penalties that may be imposed by law. Each tax payer should seek tax, legal or accounting advice from a tax professional based on his/her individual circumstances.
This material is for informational purposes only. Neither APFS nor its Representatives provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions. Information has been obtained from sources believed to be reliable and are subject to change without notification. The information presented is provided for informational purposes only and not to be construed as a recommendation or solicitation. Investors must make their own determination as to the appropriateness of an investment or strategy based on their specific investment objectives, financial status and risk tolerance. Past performance is not an indication of future results. Investments involve risk and the possible loss of principal.

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