Federal CARES (Coronavirus Aid, Relief and Economic Security) Act Includes Charitable Giving Tax Break for Donors
The CARES Act includes added financial incentive for community members who want to make donations in support of local efforts to combat the near- and long-term effects of the pandemic on our community. A universal tax break for charitable donations was included in the stimulus package and will go into effect for the 2020 tax year.
- Donors who take the standard deduction may also take an “above-the-line” deduction for up to $300 in charitable donations given in 2020. This effectively allows a limited charitable deduction to taxpayers claiming the standard deduction. For example, if you take the standard deduction and give $300 to charity, you will get a $300 tax break in addition to the standard deduction.
- For donors who itemize deductions, the limit on charitable deductions – generally 60% of modified adjusted gross income – doesn’t apply to qualifying cash contributions to public charities in 2020; instead the CARES Act allows taxpayers to claim a tax deduction of up to 100% of your Adjusted Gross Income for contributions to qualifying charities.
- For corporate donors, the limitation on charitable deductions, which is generally 10% of modified taxable income, doesn’t apply to qualifying contributions made in 2020. The new law temporarily lifts the limit from 10% to 25% of modified taxable income for 2020 filings.
- What about IRA Qualified Charitable Distributions (QCD)? The CARES Act did not change the rules around the QCD, which allows individuals over 70½ years old to donate up to $100,000 in IRA assets directly to charity annually, without taking the distribution into taxable income. However, remember that under the CARES Act an individual can elect to deduct 100 percent of their AGI for cash charitable contributions. This effectively affords individuals over 59½ years old the benefits similar to a QCD; they can take a cash distribution from their IRA, contribute the cash to charity, and may completely offset tax attributable to the distribution by taking a charitable deduction in an amount up to 100 percent of their AGI for the tax year. If you’re planning a large donation in 2020, this may be a smart strategy as long as you are between the ages of 59½ and 70½ and are not dependent on existing retirement funds.
Please consult your accountant or tax preparer for more information about these changes, and how they can help you help others during the COVID-19 pandemic.