The Tax Reform Bill that passed in 2017 essentially doubled the standard deduction for individual and joint tax filers. One of the most substantial consequences of that change was that the percentage of taxpayers who itemize their deductions went from around 35% to 6%. This major change meant that over 95% of taxpayers could no longer write off their gifts to charity.
During this difficult coronavirus era, the 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act offers lesser known provisions to increase the tax-deductibility of donations to charities for individuals and corporations. The following temporary provisions apply only to donations made to public charities in 2020:
NEW above-the-line deduction. The CARES Act adds a new above-the-line deduction that allows eligible individuals (not electing to itemize deductions) to receive a $300 deduction for cash contributions to a qualified charity. At this time, this provision is intended for 2020 charitable giving.
Relaxed limitations on deductions for individuals. For individuals who choose to itemize their deductions, the CARES Act increases the allowable deduction for cash contributions to a qualified charitable organization to 100% of the individual’s adjusted gross income in 2020. If the contribution exceeds the limitation, the individual can still carry forward and utilize the excess amount over the following five years.
Relaxed limitations on deductions for corporations. For corporate taxpayers, the CARES Act increases the limitation for cash contributions to qualified charities to 25% of taxable income in 2020. The corporation can also carry forward and utilize any excess amount over the following five years.
Additional tax planning opportunities, which were not affected by the CARES Act:
Contribution of publicly traded stock. Individuals who donate publicly traded stock, if held longer than one year, can deduct the fair market value of the stock as a charitable contribution. Additionally, if the publicly traded stock has appreciated in value, individuals do not need to report the gain as income on their tax return.
Qualified Charitable Distribution from IRAs.
Individuals who are 70½ years old may exclude up to $100,000 each year of otherwise taxable IRA distributions, if the distribution is paid directly from the IRA to a qualified charity.
This information is offered as general guidance on potential tax-saving opportunities. Please consult your tax advisor about how these temporary provisions might apply to your personal situation.
Rainbow Acres welcomes your questions about donations to our eligible 501 (c) 3 nonprofit. Thank you for your generosity and support during these challenging times.
The window for taking advantage of these changes closes on December 31, 2020.