Tag Archives: Charitable Giving

The Consolidated Appropriations Act Extends the 2020 Charitable Deductions and Provides Disaster Relief Unrelated to COVID-19

The Consolidated Appropriations Act, 2021 (the “CAA”), signed into law by President Donald Trump on December 27, 2020, provides further relief for individuals both related and unrelated to COVID-19.  Such relief includes an extension of the charitable deduction allowances granted under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and new retirement plan benefits related to “qualified disasters.”

Charitable Deductions

As a continued benefit from the CARES Act, the CAA allows an above-the-line deduction up to $300 for individuals who do not itemize deductions and who contribute cash to most qualified charitable organizations (not including certain supporting organizations or donor advised funds). In addition to this continued benefit, joint filers are allowed to take an above-the-line deduction up to $600 for such contributions in 2021 and in future years.

It is important to note that an overstatement of the charitable deduction attributable to this provision on your income tax return could result in the imposition of an accuracy-related penalty equal to 50% of the underpayment resulting from the overstatement.

The CAA also extended the CARES Act’s increase to the allowable charitable deduction for taxpayers who itemize deductions (discussed in our prior blog post) through 2021.

Retirement Plans

Dissimilar to the charitable deduction provisions, the CAA does not extend the CARES Act provisions related to retirement plan coronavirus-related distributions or loan benefits. The CAA does, however, provide that in service withdrawals from money purchase pension plans may be eligible to be treated as coronavirus-related distributions (discussed in our prior blog post).  Such provision is retroactive to the enactment of the CARES Act, and the relevant coronavirus-related distribution provisions of the CARES Act expired on December 30, 2020.

Instead of extending the COVID-19 related relief, the CAA provides disaster-relief provisions unrelated to COVID-19, which are similar to disaster-relief provisions previously enacted. The CAA provides that the early withdrawal penalty generally imposed on individuals under the age of 59½ will not be imposed on a “qualified disaster distribution” taken within 180 days of the enactment of the CAA.  Generally, a qualified disaster distribution is a distribution from certain retirement plans to an individual who lives in a qualified disaster area and has suffered economic loss due to the qualified disaster. A qualified disaster must be federally declared disaster, must meet other requirements set forth in the CAA, and does not include a disaster only by reason of COVID-19.

The total amount for the year that may be treated as a qualified disaster distribution is the excess of $100,000 over prior year’s amounts treated as qualified disaster distributions. The rules regarding repayment and the election for ratable inclusion are similar to the rules under the CARES Act for coronavirus-related distributions described in our prior blog post.  The CAA also provides special rules related to recontributions of withdrawals for home purchases.

Finally, the CAA increases the amount that certain retirement plans may loan to a qualified individual (i.e. an individual who lives in a qualified disaster area and has suffered economic loss due to the qualified disaster) if the loan is made within 180 days of the enactment of the CAA. The amount of the loan may not exceed $100,000 (instead of the usual $50,000) or the present value of the individual’s vested account balance. The CAA also includes provisions related to individuals affected by more than one disaster, loan repayment, and various other special rules.

There is a myriad of tax-related provisions in the CAA. If you would like to review your particular circumstances in light of the broad-reaching CAA, we would be glad to help you determine if there are provisions which may benefit you and your family.

Why Individuals Should Care About the CARES Act: Retirement Plans and Charitable Contributions

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides various relief provisions for individuals, including provisions that benefit individuals in relation to their retirement plans and that provide an increase in allowable charitable deductions. Continue reading

Pink October: Be Careful That Giving Does Not Cause You Grief

For many years now, the arrival of October, which has been dubbed “Breast Cancer Awareness Month,” has been accompanied by an onslaught of pink products being sold to benefit various breast cancer charities. This practice of selling products or services to benefit a charity (often referred to as a “commercial co-venture”) has become increasingly popular among business owners—in addition to the philanthropic goal of donating to a worthy cause, the use of the charity’s name will also often result in an increase in sales for the company. Because these partnerships involve claims made to consumers regarding the recipient, and use, of the funds, many states have begun to regulate commercial co-ventures to ensure that accurate information is provided to consumers and that the money is ultimately used in the manner advertised.

Unfortunately, there is little uniformity among the regulations of the various states. For example, some states require a written contract with the charity specifying exactly how the donation will be calculated. In some cases, this contract must be filed with the state. Other requirements may include registration with the state and furnishing financial statements to the charity and/or the state. In each case, the regulations across the states differ with regard to whose responsibility (either the for-profit company or the non-profit company) it is to ensure that these requirements are satisfied. Adding to the complexity is the fact that many sales involve the internet and interstate commerce, so commercial co-venturers may unintentionally, and unknowingly, subject themselves to the regulations of multiple states.

Entering into a commercial co-venture is a noble, but complicated, endeavor. If you are considering entering into a commercial co-venture, you should take steps to ensure that you are complying with all applicable laws.  Some best practices include:

  • Entering into a written agreement that grants a license to use the charity’s name in connection with sales;
  • Including an honest disclaimer of the amount being donated (including any minimums or maximums) in advertisements and on the product;
  • Keeping a detailed accounting of sales during the promotion; and
  • Consulting with a lawyer to confirm all state-specific requirements are met.

Elizabeth M. Stamoulis
estamoulis@williamsparker.com
(941) 552-5546

Charitable Giving Under the New Tax Act – The Standard Deduction Bump

One of the more visible changes from the Tax Act will be the increase in the standard deduction. When completing an annual tax return, a taxpayer has the choice to either take a standard deduction or to itemize deductions. The standard deduction is a flat dollar amount which reduces your taxable income for the year, with the same standard deduction amount applying to every taxpayer who takes the standard deduction. The itemized deduction instead allows a taxpayer to deduct a number of different expenses from throughout the year, including certain medical expenses, mortgage interest, casualty and theft losses, state and local taxes paid, and charitable contributions. Whether a taxpayer uses the standard deduction or itemizes his or her deductions will depend on whether that taxpayer’s itemized deductions exceed the standard deduction amount.

In 2017, the standard deduction amount was $6,350 for single taxpayers and $12,700 for married taxpayers filing jointly. The Tax Act has nearly doubled these amounts for 2018, with the standard deduction increased to $12,000 for single taxpayers and $24,000 for married taxpayers filing jointly. Limitations have also been placed on deducting state and local taxes (capped at $10,000) and on mortgage interest (limited to new loans, capped at $750,000).

Taxpayers now have a higher standard deduction amount they need to pass before itemizing their deductions and they have more limited expenses available in order to get over that bar. Fewer people will be generating the expenses needed to make itemizing deductions worthwhile. The Tax Policy Center estimates that the percentage of taxpayers itemizing deductions will drop from 30% to only 6%.

If fewer taxpayers are itemizing their deductions, the tax benefits of charitable giving will be available to fewer taxpayers. The Tax Policy Center estimates charitable giving to drop anywhere from $12 billion to $20 billion in the next year. Taxpayers may instead bunch their charitable gifts into a single year, itemizing their deductions in such a year while using the standard deduction in subsequent years rather than spreading out these gifts over a stretch of years.

People charitably give to their favorite organizations out of a humanitarian desire to help less fortunate people and to benefit the wider community; a smaller tax incentive will not change this. But the smaller tax incentive is expected to have a negative impact both for a taxpayer’s ability to deduct charitable gifts and for the amount of gifts charitable organizations expect to receive.

Jamie E. Koepsel
jkoepsel@williamsparker.com
(941) 552-2562

Tax Savings Estimator: Qualified Business Income Deduction

If you own a business taxed as a sole proprietorship, partnership, or S corporation, the new Section 199A Qualified Business Income Deduction offers one of the biggest potential tax benefits under the recently-enacted Tax Cuts and Jobs Act. It allows you to deduct up to twenty percent of your business income. If your income exceeds $157,500 ($315,000 for a married joint filer), the deduction is limited by filters tied to your company’s employee payroll and depreciable property ownership. There are other restrictions, but for most business owners our calculator offers a useful, simplified estimate of tax savings from the new deduction.

Curious whether you should change the tax status of your company? Read our analysis here: Should You Reform Your Business for Tax Reform?

E. John Wagner, II
jwagner@williamsparker.com
941-536-2037

Pink October: Be Careful That Giving Does Not Cause You Grief

single-ribbon-pink-1306036

For many years now, the arrival of October, which has been dubbed “Breast Cancer Awareness Month,” has been accompanied by an onslaught of pink products being sold to benefit various breast cancer charities.  This practice of selling products or services to benefit a charity (often referred to as a “commercial co-venture”) has become increasingly popular among business owners—in addition to the philanthropic goal of donating to a worthy cause, the use of the charity’s name will also often result in an increase in sales for the company.  Because these partnerships involve claims made to consumers regarding the recipient, and use, of the funds, many states have begun to regulate commercial co-ventures to ensure that accurate information is provided to consumers and that the money is ultimately used in the manner advertised.

Unfortunately, there is little uniformity among the regulations of the various states.  For example, some states require a written contract with the charity specifying exactly how the donation will be calculated.  In some cases, this contract must be filed with the state.  Other requirements may include registration with the state and furnishing financial statements to the charity and/or the state.  In each case, the regulations across the states differ with regard to whose responsibility (either the for-profit company or the non-profit company) it is to ensure that these requirements are satisfied.  Adding to the complexity is the fact that many sales involve the internet and interstate commerce, so commercial co-venturers may unintentionally, and unknowingly, subject themselves to the regulations of multiple states.

Entering into a commercial co-venture is a noble, but complicated, endeavor.  If you are considering entering into a commercial co-venture, you should take steps to ensure that you are complying with all applicable laws.  Some best practices include:

  • entering into a written agreement that grants a license to use the charity’s name in connection with sales;
  • including an honest disclaimer of the amount being donated (including any minimums or maximums) in advertisements and on the product;
  • keeping a detailed accounting of sales during the promotion; and
  • consulting with a lawyer to confirm all state-specific requirements are met.

Elizabeth M. Stamoulis
estamoulis@williamsparker.com
(941) 552-5546