Investing with Faith / Steve Gaylord

A consistent giving program is possible, despite tax law changes

Through more than 40 years of marriage, my wife Anne and I have often asked ourselves: “What can we do to help others living on the margins of our community—those stranded in a cycle of poverty, social indifference and lack of opportunity?”

Both of us are retired certified public accountants (CPAs), so we share a practical approach in our discussions. Over and over, our conclusion has been that we should channel our time and dollars into the education and preventative care of at-risk young people and their families. We believe that early intervention in their lives is the most effective way to help them break the cycle of poverty and for them to have more loving and productive lives.

Part of our efforts has been a consistent giving program to organizations that educate and help young people, including several administered by the Archdiocese of Indianapolis. As CPAs, we know that we can usually give more support if we stay current on tax laws governing charitable contributions, reducing our tax bill but contributing that savings to charities. But lately, keeping current on such tax laws has been challenging.

First, the Tax Cuts and Jobs Act of 2017 eliminated the specific deduction for charitable contributions for most donors who could no longer itemize deductions on their income tax returns.

In 2019, the SECURE Act made changes to the laws governing retirement plans, including several provisions of interest to donors. By increasing the age at which an IRA owner must take RMD’s (required minimum distributions) to 72, the act removed a strong incentive for donors between ages 70½ and 72 to make QCD’s (qualified charitable distributions).

That said, a QCD made between 70½ and 72 offers non-itemizers the same tax benefits of an itemized deduction. The SECURE Act also eliminated the “stretch” IRA for the donor’s heirs, which may incent IRA owners to designate their IRA assets for charities and their other estate assets for their heirs.

Finally in 2020, the CARES Act, passed to provide relief from the economic effects of the COVID-19 pandemic, allows donors who don’t itemize to make an “above the line” deduction from taxable income of up to $300 for annual charitable contributions. Further, itemizers may elect to deduct cash contributions up to 100% of their 2020 adjusted gross income, up from the previous 60% limit. Neither of these “new” deductions apply to contributions made to donor-advised funds.

The CARES Act also waived RMDs in 2020 for individuals over age 70½. The suspension of the RMD somewhat dampens the incentive for a donor to make QCDs in 2020, but donors directing a QCD to a charity this year (up to $100,000 per individual) will still reduce their taxable IRA balance going forward.

As you can see from the preceding summary of recent tax law changes, it is often difficult for us to figure out how to best make charitable contributions and when to make them. But, as believers in the mission of Christ, we all have a responsibility to determine what things belong to Caesar and what things belong to God—and then to take consistent philanthropic actions to help those in need.
 

(Steve Gaylord, who serves as vice president of the archdiocesan Catholic Community Foundation’s Advisory Board of Directors, is a member of St. Malachy Parish in Brownsburg. Tax information or legal information provided herein is not intended as tax or legal advice and cannot be relied on to avoid statutory penalties. Always check with your legal, tax and financial advisors before implementing any gift plan.) †