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In addition to the financial assistance programs to provide relief for businesses impacted by the coronavirus pandemic, the Cares Act enhances incentives for certain charitable contributions in an effort to drive giving in our most desperate of times.

The changes – some permanent, some temporary – are summarized below:

 

Temporary Increased Limits on Deductibility of Cash Contributions by Individuals

In general, an individual is subject to deduction limitations for charitable contributions made each year. Under the Act, “qualified contributions” are disregarded for purposes of applying such deduction limitations; historically 60% of AGI.

“Qualified contributions” are cash contributions made to public or certain private foundations in 2020. Contributions to donor-advised funds do not qualify.

Qualified contributions will be deductible to the extent they do not exceed the individual’s adjusted gross income. Any amounts not able to be deducted in 2020 may be carried forward. Effectively, this temporary provision gives individuals the ability to make a fully-deductible contribution of 100% of their adjusted gross income.

Example: A household with an adjusted gross income (AGI) of $240,000 donates $200,000 to their nonprofit of choice. The entire $200,000 now qualifies as an itemized deduction when calculating taxable income. Previously, only $144,000 (60% of AGI) could be itemized and the remaining $56,000 would have been carried forward to future years.

 

Permanent Charitable Deduction for Non-Itemizers

Individuals who do not itemize will be able to take an above-the-line charitable deduction of up to $300 for cash contributions made to public charities or certain private foundations. Contributions to supporting organizations, donor-advised funds, and certain private foundations do not qualify. This change applies to tax years 2020 and beyond.

 

Temporary Increased Limits on Deductibility of Contributions by Corporations

Cash – In general, a corporation may deduct charitable contributions made up to 10 percent of the corporation’s taxable income. Qualified contributions (as defined above) are deductible by a corporation to the extent that the qualified contributions do not exceed 25 percent of the corporation’s taxable income less than all other charitable deductions taken in the same tax year. Any amounts not able to be deducted in 2020 may
be carried forward.

Food Inventory – Donations of food inventory were previously subject to a 15 percent income limitation. Under the Act, a c-corporation may deduct donations of food inventory made in 2020 up to 25 percent of the corporation’s taxable income. Food inventory donations remain subject to a certain basis and gain limitations described in Code Section 170. Any amounts not able to be deducted in 2020 may be carried forward.

 

Please be sure to consult your tax professional for details.

If you would like to speak to a financial advisor about the opportunities to donate in-kind appreciated stocks or distributions from an Individual Retirement Account (IRA), our friends at Castleview Wealth Advisors can provide expert knowledge and guidance throughout the gifting process.

Feel free to contact Marshall Stockdell, Deputy Director if you have questions. Marshall can be reached at [email protected].

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