On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted into law. Designed to help households, businesses, and nonprofits navigate the fallout of the pandemic, the landmark $2 trillion bill represents the largest economic stimulus package in U.S. history.
The CARES Act also contained provisions relating to charitable giving that are relevant to donors. Specifically, a new above-the-line deduction for non-itemizers and a temporary increase to certain percentage limitations for cash charitable contributions.
New Above-the-Line Charitable Deduction for Non-Itemizers
Section 2104 of the CARES Act made a new above-the-line charitable tax deduction of up to $300 available to taxpayers who do not itemize. Previously, a taxpayer could only claim a charitable deduction by itemizing. Since roughly nine out of ten households now take the standard deduction, this new deduction is available to the majority of households.
In order to qualify, contributions must be cash donations to qualified charities. Specifically, donations made to donor advised funds (DAF), supporting organizations, and private foundations do not qualify. That said, the Act still allows donors to give to a wide variety of charities. There is no requirement that donations be directed to nonprofits working directly with COVID-19 relief to be eligible for this deduction.
In short, if a taxpayer donates $300 or more to a qualified charity and takes the standard deduction, they will get the $300 charitable deduction in addition to the standard deduction ($12,400 for individuals and $24,800 for married couples filing jointly). This is an above-the-line adjustment to income that reduces a taxpayer’s adjusted gross income (AGI), and thereby reduces taxable income.
As the law is written, the $300 maximum deduction appears to be applicable per tax return, so a couple filing jointly is apparently limited to a $300 deduction. This is somewhat unclear at this time.
According to the Act, this new deduction is available in the case of taxable years beginning in 2020. There is currently no provision to sunset the deduction, however it is not clear whether Congress truly intended for this deduction to apply in future years.
Increased Charitable Contribution Cap for 2020
Section 2105 of the CARES Act temporarily increases certain percentage limitations for cash charitable contributions made to qualifying charities.
For Individuals: Prior to the passing of the Tax Cuts and Jobs Act (TCJA) in 2017, individuals could deduct charitable gifts valued at no more than 50 percent of their AGI during a given year, with the excess deductible in future years. The TCJA increased the cap on how much a taxpayer can deduct in charitable gifts in a single year to 60 percent of AGI under certain circumstances. The CARES Act has eliminated the cap entirely for 2020 for qualified cash contributions. Thus, a donor can arrange their giving to allow a deduction for equal to as much as 100 percent of their AGI this year. So, if a taxpayer has $500,000 in income in 2020, they can give $500,000 to a qualifying charity and deduct the full amount. If they have sufficiently significant wealth that they are able to give more than their income in 2020, the deduction for the excess amount can be carried forward over the next five years.
For Businesses: The CARES Act also increases the taxable income limitation for corporate cash charitable contributions. Businesses could previously deduct 10 percent of taxable income for qualified charitable contributions. In 2020, they can deduct up to 25 percent of taxable income for qualified cash charitable contributions. Just like with the individual cap, any contributions in excess of the taxable income cap can be carried forward and utilized over the next five years.
There are some caveats. Again, the aforementioned new caps for individuals and businesses are only for cash gifts that go to a qualifying public charity. Old deduction rules still apply regarding donations made to DAFs, supporting organizations, and private foundations, generally as follows:
- 20 percent of AGI cap for gifts of publicly traded securities to a private foundation
- 30 percent of AGI cap for gifts of publicly traded securities to a to DAF or supporting organization
- 30 percent of AGI cap for gifts of cash to a private foundation
- 50 percent (and under some circumstances, 60 percent) of AGI cap for gifts of cash to a DAF or supporting organization
Donations to establish or maintain some types of charitable funds do however qualify, including gifts to scholarship funds, designated funds, endowment funds, field of interest funds, or unrestricted funds. The Columbus Foundation’s Emergency Response Fund, which is providing support to nonprofits that are responding to the spread of COVID-19 in Franklin County, is a specific example of a fund that fits into the qualifying public charity category.
Food Donations: Contributions of food inventory to charitable organizations caring for the ill, the needy, or infants were previously limited to 15 percent of taxable income. During 2020, that limitation has increased to 25 percent, thereby encouraging donations of food to nonprofits that provide for those in need.
The Columbus Foundation is committed to being a point of access for those who want to assist others. Contact us if you are interested in learning more about how we can help you support the community during this unprecedented time.
About The Columbus Foundation
The Columbus Foundation serves nearly 3,000 individuals, families, and businesses that have created unique funds and planned gifts to make a difference in the lives of others through the most effective philanthropy possible. The Columbus Foundation is Your Trusted Philanthropic Advisor® and is one of the top ten largest community foundations in the country.