Charles R. Kennedy, CPA, MBA
Vice President & Director of Tax Services
As 2020 draws to a close, taxpayers who made charitable contributions this year – or who plan to before the clock strikes midnight on December 31 – may benefit from three provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Enacted in March 2020 the CARES Act is most notable for providing billions of dollars in economic relief to businesses and individuals affected by the Covid-19 pandemic. However, the CARES Act also provided relief to nonprofit organizations through expanded deductions for individuals and corporations who make charitable contributions.
Individual Provisions
$300 Above-the-Line Charitable Deduction
The provision that will benefit the broadest cross section of taxpayers is the $300 “above-the- line charitable deduction,” so called because anyone who does not qualify to itemize can take the deduction.
The deduction is limited to $300 whether you file single or married filing jointly. To qualify the contribution must be in cash (i.e., cash, check or credit card) paid during 2020. The deduction does not apply to pledges for future giving or to donations of property such as art, nor to contributions to donor-advised funds. To qualify for the deduction contributions must be made to a public charity exempt from tax under 501(c)(3) of the Internal Revenue Code.
The above-the-line deduction means individuals who do not quality to itemize can reduce their adjusted gross income by the amount of the contribution up to $300.
It is important to note that documentation from the recipient organization is not required for charitable gifts of $250 or less. The donor’s cancelled check or credit card statement will do. So, if a taxpayer reaches the $300 deduction limit by making two donations of less than $250 each, documentation will be simple.
Modified Charitable Contribution Limitation
The second provision of the CARES Act related to charitable giving enables taxpayers who itemize to deduct charitable gifts of cash (including those made by check or credit card) up to an amount equal to 100% of their adjusted gross income (AGI) previously adjusted for other gifts for 2020.
Since 2018, itemizers have been limited in their charitable giving deductions to 60% of their AGI under the Tax Cuts and Jobs Act (TCJA), so this is a significant expansion.
Corporate Provision
While the two above provisions apply to individual taxpayers, Congress did not forget corporate givers in the CARES Act. The law also increased the amounts of annual charitable deductions for corporations from 10% of modified taxable income to 25%. To qualify for the deduction, similar to the above provisions, only cash (including checks and credit cards) contributions qualify. Donations that are greater than 25% of modified taxable income can be carried over to the following five years.
Charitable giving nationwide has been uneven, with overall giving dipping by 6% in the first quarter compared with the previous year. However, certain charitable sectors are doing better than others, and the results of Giving Tuesday this year – held annually the Tuesday after Thanksgiving – were 25% above last year.
But many charities – especially those related to hunger and homelessness – have seen an explosion in need this year, straining their resources. Whether the charitable giving deductions contained in the CARES Act will help remains to be seen.
If you have questions about how the charitable giving deductions can affect you, please contact Charles R. Kennedy, CPA, MBA, or James J. DeLuca, CPA, MST.
