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The CARES Act – created by Congress earlier this year in response to the COVID-19 crisis – included some important provisions related to charitable giving.

The first change introduces the ability for taxpayers who do not itemize their deductions, to make a $300 contribution to qualifying charities and receive an above the line deduction to their adjusted gross income.  This is a totally new and now permanent aspect of the tax law.  Two things about this deduction should be made clear.  First, these contributions apply to cash only—not stocks or other types of property.  Second, that deduction applies to taxpaying “units”—so a married couple filing jointly would only be allowed the same $300 deduction as a sole taxpayer.

For those taxpayers who do itemize their deductions, the CARES Act provides a generous incentive to give.   Normally, the maximum deduction a taxpayer may take for a cash contribution to charity is limited to 60% of their adjusted gross income.  But under the CARES act, for the year 2020 only, donors can fully deduct up to 100% of their adjusted gross income for any cash donations made directly to charity.  This can be a wonderful opportunity to either make a significant gift or even accelerate your fulfillment of a multi-year pledge to maximize the tax benefit in 2020 (and any unused deduction can be applied to subsequent tax years).  A powerful financial planning strategy could be to pair such a cash gift with doing an IRA Roth conversion and limit the federal tax liability you would otherwise have on the amount converted.