Top ways the CARES Act will affect your tax-deductible donations

May 21, 2020

By Jamie Schloegel, Chief Executive Officer

Philanthropy is playing a major role in supporting how nonprofits respond to the COVID-19 pandemic. Nonprofit organizations are working on the front lines in our community, offering critical services and providing a safety net of essential resources.

Our government recognized the crucial and vital role nonprofits funded through philanthropy are playing in helping our country respond. As such, the Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law on March 27 included several tax incentives for charitable giving for both individuals and corporations to signify an intent to stimulate philanthropy throughout our country.

As you continue to look for ways to help those in need, here are some things to keep in mind related to these special tax incentives included in the CARES Act. Be sure to talk with your tax advisor with any additional questions.

For those who itemize deductions: The adjusted gross income (AGI) limit for cash contributions was increased for individual donors. For cash contributions made in 2020, you can now elect to deduct up to 100 percent of your AGI (increased from 60 percent).

Not itemizing? This is the case for most of us since the most recent tax reform bill, which makes this incentive even better! The CARES Act allows for an additional, “above-the-line” deduction for charitable gifts made in cash of up to $300. If you are not itemizing on your 2020 taxes, you can claim this new deduction.

If you own a business and are considering a corporate donation: The AGI limit for cash contributions was also increased for corporate donors. Corporations can now deduct up to 25 percent of taxable income (increased from 10 percent).

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.

If you are in a position to give, please do. Nonprofits will be suffering the effects of lost revenue from the pandemic long past the end of the public health crisis. You can help ensure your favorite nonprofits survive by maximizing these charitable giving incentives in 2020.

**Note: The tax information provided above is general and educational in nature and should not be construed as legal or tax advice.