The Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

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The CARES Act, which was signed into law on March 27, 2020, includes an expanded charitable giving incentive to support the essential services that nonprofits throughout the United States provide. It is the first time Congress has passed this type of giving incentive in response to disaster or national emergency.


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, such as Habitat for Humanity of Greater Los Angeles. The old deduction rules apply to gifts to private foundations. The higher deduction does not apply to donations directly to a DAF. The new limits do not apply to gifts of appreciated stock. Finally, if your assets are substantial enough that you can give more than your income this year, you won’t lose the deduction for the excess amount. You can use it next year, as has always been the case.


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, contact Sandy Moreno

*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.