How the Cares Act impacts charitable giving
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, includes expanded charitable giving incentives to provide relief for nonprofits.
NEW DEDUCTION AVAILABLE
Up to $300 per taxpayer ($600 for a married couple) in annual charitable contributions. This is available only to people who take the standard deduction (for taxpayers who do not itemize their deductions). It is an “above the line” adjustment to income that will reduce a donor’s adjusted gross income (AGI), and thereby reduce taxable income.
A donation to a donor-advised fund (DAF) does not qualify for this new deduction.
NEW CHARITABLE DEDUCTION LIMITS
As part of the bill, individuals and corporations that itemize can deduct much greater amounts of their contributions. Individuals can elect to deduct donations up to 100% of their 2020 AGI (up from 60% previously). Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%. The new deduction is for gifts that go to a public charity 501(c)(3), such as United Services for Children.
The previous deduction rules apply to gifts to private foundations only. The higher deduction does not apply to donations directly to a DAF.
REQUIRED MINIMUM DISTRIBUTIONS WAIVED IN 2020 FOR MOST DONORS
Required minimum distributions (RMD) that would have had to start in 2020 (individuals over the age of 70 ½) do not have to start until 2021, including distributions from defined benefit pension plans and 457 plans. This change will dampen somewhat the incentive for a donor to make a qualified charitable distribution (QCD) from their IRA in 2020. Even so, making a QCD this year will still allow itemizers and non-itemizers alike to direct up to $100,000 from their IRA to charities in a tax-efficient manner. In other words, donors directing a QCD to a nonprofit this year (up to $100,000 per individual) will still reduce their taxable IRA balance. This allows all taxpayers, itemizers and non-itemizers alike, to direct gifts from their IRA to charities in a tax-efficient manner. For more information, please contact Diane Wolferding, Development Director at firstname.lastname@example.org
Please note: This information is not intended as legal or tax advice. For such advice, please consult an attorney or tax advisor. Figures cited in any examples are for illustrative purposes only. References to tax rates include federal taxes only and are subject to change. State law may further impact your individual results.