Many of us are searching for ways, even small ones, to help those on the front lines of the crisis. What you may not know is that the federal government—as part of the multi-trillion-dollar virus relief bill, the CARES Act—tweaked certain rules to encourage giving to COVID-19-related causes and non-profits impacted by the pandemic.
Here’s a brief rundown of the major changes in the bill related to charitable giving. As of this writing, all of these changes are only applicable to the 2020 tax year.
- Higher Cash Donation Limits. If you can give big, you’ll be able to deduct more of your contributions than usual. Typically, in a given year, you can only deduct up to 60% of your adjusted gross income for cash contributions. (Donations in excess of that percentage are allowed to be carried forward for a period of five years.) In 2020, though, there is no limit to the percentage of your income you can deduct for cash contributions. This means you can deduct 100% of your adjusted gross income. One important caveat: This 100% allowance does not carry over to any contributions made to a donor-advised fund.
- Raised Cap on Corporate Giving. The CARES Act pushes the limit on cash contributions made by corporations from 10% to 25% of their taxable income.
- New Deduction for Non-Itemizers. The 2017 tax reform bill increased the size of the standard tax deduction, leading many taxpayers to stop itemizing their charitable contributions. But the CARES Act allows you to take a deduction up to $300 for a gift to a qualified charitable organization, even if you do not otherwise itemize your giving.
One thing that hasn’t changed in the CARES Act? Qualified Charitable Distributions (QCD). The QCD has been a popular giving strategy in recent years. It allows eligible taxpayers who are age 70½ or older to donate up to $100,000 from an IRAA type of account in which funds can be saved and invested without being subject to tax until the account holder reaches retirement age. directly to a charity, bypassing any taxable income on their tax return.
If you have any questions about how these charitable giving strategies might affect you and your financial plan, contact your wealth management team. We are happy to assist.