The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) opened the door for generous provisions for donors to take advantage of in regards to tax benefits for charitable giving specific to 2020. Now is the time to communicate with your donors about these benefits and encourage year-end giving. The following covers a few of the new rules and provides sample language to contact supporters.
The CARES Act was signed into law Friday, March 27, 2020, for relief from the impacts of COVID-19. Although the CARES Act was designed as economic assistance for American Workers and family through various stimulus benefits, the act also changed the tax benefits for charitable giving for 2020.
Reminding donors of some of the benefits in charitable giving should be done prior to December 31 to encourage giving and allow donors to maximize tax benefits of charitable giving when needed the most.
This pertains to cash donations to qualifying charitable organizations such as 501(c)(3) public charities. For other types of donations, like non-cash donations, which include donations of real estate or marketable securities, contributions to donor advised funds, conservation easement, or private foundations have other limits/restrictions, which are applicable and will not be addressed here.
Key Provisions that Affect 2020 under the CARES Act
How does the Act impact taxpayers that itemize?
For the first time ever, donors who itemize their deductions can now deduct charitable contributions up to 100% of adjusted gross income (AGI). This change allows donors to maximize donations in a single year and have more control over the impact of contributions on taxable income. Previously, this limit was at 60% of AGI. Giving beyond this 100% limitation may be carried over and used in the next five years.
How does the CARES Act impact those that do not itemize?
Taxpayers who generally do not itemize on their personal return can take a charitable deduction of up to $300 for cash contributions to qualifying organizations on their personal return. This deduction will be an ‘above the line’ deduction and the maximum is $300 regardless of filing status.
What about gifts from an IRA?
Under the CARES Act, taxpayers could opt out of receiving most of their required minimum distributions (RMDs) from IRA’s and retirement plans; however, donors age 70½ or older can still make a qualified charitable distribution (QCD, or IRA charitable rollover) of up to $100,000. This benefit may have been minimized if donors elected to quit taking their RMD’s; conversely, the benefit of using a QCD to satisfy an RMD requirement remains a great way to make tax advantageous gifts, especially if the donor doesn’t itemize deductions. Another advantage is a QCD keeps the income out of the taxpayer’s gross income, which can influence the effective tax rate and limitations of other deductions.
What about corporate giving?
The CARES Act did change the rules for corporate giving, as well and increased the cap on how much corporations may deduct from 10 percent of taxable income to 25 percent. Although many corporations have been negatively impacted by COVID-19 in 2020, others have been able to maintain positive cash flow and may benefit from increased giving.
Sample language for communication with donors:
“As we are approaching the end of 2020, consider whether you have made the most of your charitable giving by taking advantage of charitable giving under the CARES Act.
We have heard a lot about the CARES Act as a stimulus package, but keep in mind the changes in the charitable giving rules for 2020 can have a positive impact on charitable giving by using these rules to get the most tax savings.
The CARES Act has a bit for all individual taxpayers in the allowing those who do not itemize a $300 ‘above the line’ deduction for cash donations to a qualifying organization, in addition to increasing the limit of charitable contributions from 60% of adjusted gross income (AGI) to 100% of AGI for those that itemize. This limit allows donors more control over their taxable income. Carryover rules still apply for contributions above the allowed limit.
The CARES Act may have changed the benefits of the qualified Charitable distribution (QCD), but the benefits of a direct rollover contribution from retirement plans/IRA’s still applies and benefits both taxpayers who can and cannot itemize.
Corporate charitable giving has typically had a 10% limit based on taxable income, but for 2020 that limit was increase to 25%.”
As a reminder, be sure to follow the guidelines and requirements for acknowledging charitable donation including the language that “no goods or services were provide” statement if this applies.
It is always a good idea for donors to check with their tax advisors to understand how the CARES Act rules apply to their specific situation.
Guest Blog by:
Suzanne Severin | CPA, Shareholder