Take Advantage of Temporary Tax Changes for Charitable Contributions

Done any good deeds lately to help the community during COVID-19? Take advantage of these temporary changes involving charitable contributions made by individuals and businesses. Please help us spread the word!

The CARES Act makes a new charitable “universal deduction” available to individual taxpayers that do not itemize their deductions. This new benefit allows for a charitable deduction of up to $300 per individual. This is an above-the-line contribution that is deducted from the individual taxpayer’s income prior to the calculation of their adjusted gross income. This charitable giving benefit will extend beyond the 2020 tax year.

In addition, the Act provides incentives for both individuals and corporations by increasing the available deductions on qualified charitable contributions to:

• 100% of their adjusted gross income for individual taxpayers who itemize their deductions. Beyond the scope of the CARES Act, the deduction for qualified charitable contributions made by itemizing individual donors is limited to 60% of their adjusted gross income.
• 25% of taxable income for corporations. Up from the 10% limit which is generally applicable for corporations outside of the CARES Act.

Please see details below. As long as the requirements are met, the universal deduction and the increased deduction limits are applicable to charitable gifts going to any cause the donor wants to support. The donation does not have to be related to COVID-19 relief efforts.

The new above-the-line deduction of $300 available to non-itemizing individual taxpayers is not restricted to donations made in 2020, and it is foreseen to survive the CARES Act. To qualify for the enhanced deduction limits of 100% for itemizing individual taxpayers and 25% for corporations, the charitable contributions must be made during the 2020 calendar year.

Details on Temporary Suspension of Limits on Charitable Contributions
In most cases, the amount of charitable cash contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to 60% of the taxpayer’s adjusted gross income (AGI). Qualified contributions are not subject to this limitation. Individuals may deduct qualified contributions of up to 100% of their adjusted gross income. A corporation may deduct qualified contributions of up to 25% instead of 10% of its taxable income. Contributions that exceed that amount can carry over to the next tax year. To qualify, the contribution must be:

• A cash contribution;
• Made to a qualifying organization;
• Made during the calendar year

2020 Contributions of non-cash property do not qualify for this relief. Taxpayers may still claim non-cash contributions as a deduction, subject to the normal limits. Contributions to donor-advised funds do not qualify for the enhanced benefits under the CARES Act.

Details on Temporary Increase in Limits on Contributions of Food Inventory
There is a special rule allowing enhanced deductions by businesses for contributions of food inventory for the care of the ill, needy or infants. The amount of charitable contributions of food inventory a business taxpayer can deduct under this rule is limited to 15% of the taxpayer’s aggregate net income or taxable income. For contributions of food inventory in 2020, business taxpayers may deduct qualified contributions of up to 25% of their aggregate net income from all trades or businesses from which the contributions were made or up to 25% of their taxable income.

Reach out to us: Our tax department professionals feel not enough taxpayers or non-profits are aware of these truly substantial changes to the tax treatment of donations. Eliminating the AGI cap accelerate the timing of donations that might otherwise have been drawn out over years. For individuals, it could theoretically mean zero taxable income if someone gives big. There is extreme financial pressure on non-profits right now and the services they are providing during the pandemic are more important than anything. Please help us spread the word as the window for taking advantage of these temporary changes closes on December 31, 2020.