COVID-19 Tax Implications for Charitable Giving
The COVID-19 pandemic and the passage of the CARES Act by the federal government have changed the potential outlook charitable contributions and planning in 2020.
The CARES Act has loosened some of the limits on charitable giving to encourage individuals and corporations to make cash contributions to public charities. There are three main adjustments, and each applies to a different subset of donor.
1. Above-the-line deduction. Under prior rules, individuals who do not itemize but instead take the standard deduction on their income tax returns could not take a charitable deduction for cash contributions to qualified charities outside of the standard deduction. The standard deduction is $12,400 for single taxpayers and $24,800 for taxpayers that are married filing jointly. The CARES Act adds a new above-the-line deduction that allows an individual not itemizing deductions to deduct up to $300 in cash contributions to a qualified charity. This is above and beyond the standard deduction allowing for an additional deduction to an individual’s tax return.
2. Relaxed limitations on deductions for individuals. For individuals who choose to or can itemize their returns, individuals had been limited in the deduction for cash contributions to qualified charitable organizations to 60% of the individual’s adjusted gross income (AGI). Now, under the CARES Act, the deduction for cash contributions to a qualified charitable organization in 2020 is increased to 100 percent of the individual’s AGI. If the contribution exceeds the limitation of 100 percent of AGI, as it was previously, the individual can still carry forward and utilize the excess amount over the following five years.
3. Relaxed limitations on deductions for corporations. Corporate deductions for cash contributions to qualified charities have been limited to 10 percent of taxable income. The CARES Act now makes this limitation for cash contributions to qualified charities in 2020 to 25 percent of the taxable income of such corporation. As was the case before, the corporation can also carry forward and utilize any access amount over the following five years.
Cash contributions must be made to a qualified public charity and cannot be made to a donor advised fund or private foundation. Please consult your financial advisor for more information or how these changes specifically apply you.