December 31, 2020 is fast approaching. Below are year-end planning updates for charitable contributions and qualified medical expenses.
- The above-the-line charitable deduction. Any individual taxpayer is entitled to a charitable deduction this year. Typically, there is no tax benefit for donations to charity unless you itemize deductions. However, the CARES Act created an above-the-line deduction of up to $300 for cash contributions by taxpayers who do not itemize. Cash donations include those made by check, credit card or debit card. This does not include securities, household items or other property. Cash contributions to most publicly supported charitable organizations qualify. Contributions to non-operating private foundations or donor-advised funds are not eligible. If you would like to take advantage of this provision, be sure to make a cash donation before the end of the year.
- Expanded Adjusted Gross Income (AGI) limitation for itemized charitable deductions. Individuals who make cash contributions to publicly supported charities are permitted a charitable contribution deduction of up to 60% of their AGI. Contributions in excess of the 60% AGI limitation may be carried forward in each of the succeeding five years. The CARES Act suspends the 2020 AGI limitation for qualifying cash contributions and instead permits individual taxpayers to take a charitable contribution deduction for qualifying cash contributions made in 2020 up to the amount of their AGI. Any excess carries forward as a charitable contribution that is usable in the succeeding five years. Contributions to non-operating private foundations or donor-advised funds are not eligible for the 100% AGI limitation.
QUALIFIED MEDICAL EXPENSES
- The new CARES Act expands eligible expenses for various tax-advantaged accounts including HSAs, Health FSAs, HRAs, and Archer MSAs. Certain over the counter (OTC) drugs and medications are now qualified medical expenses.
- The CARES Act restores the ability to use these accounts to purchase certain OTC drugs and medications, like aspirin and other pain medications, allergy medication, etc., without a doctor's prescription.
- Items such as thermometers, batteries for medical devices, contact lenses and solution, prescription glasses, cold and allergy medicine, and first aid items like bandages, gloves and cleansing wipes are all covered.
- For the first time feminine hygiene products are considered qualified medical expenses for payment or reimbursement from these accounts.
- Both provisions for OTC and feminine hygiene products apply to amounts paid or expenses incurred on or after January 1, 2020. This provision does not have an expiration date.
- Some HSA/FSA administrators are covering the costs of Personal Protective Equipment (PPE) - to prevent/stop the flow of disease. This may include, but not limited to, face masks, face shields, gloves, disinfecting wipes, and hand sanitizer. PLEASE CONSULT YOUR HSA/FSA PROVIDER TO CONFIRM THEIR POLICY REGARDING PPE.
If you have any questions regarding charitable contributions or qualified medical expenses, please contact our office. We are happy to assist you.