CARES Act Offers Tax Incentives for Charitable Contributions
For tax year 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act offers enhanced tax incentives for making charitable contributions. Here are the details:
Individuals
In general, the itemized charitable deduction for individuals is limited to a percentage of the taxpayer’s adjusted gross income (AGI). The percentage is determined by the type of organization receiving the donation and the type of property donated. For 2020 only, the CARES Act has increased the limit for deducting cash contributions to public charities from 60% of AGI to 100%. This expanded limit does not apply to cash contributions to donor-advised funds, supporting organizations, or private foundations. In applying the AGI limitations, cash contributions are measured first. Contributions of appreciated property cannot be combined with cash contributions to achieve this higher limit of deductibility. Excess contributions may be carried forward to offset income in the following five years.
Also, beginning in tax year 2020, an individual who does not itemize deductions can deduct up to $300 in charitable contributions made to churches, nonprofit schools, nonprofit medical institutions, and other organizations as an above-the-line deduction in calculating adjusted gross income. This allows an individual to claim a deduction for a charitable contribution even if the individual does not itemize deductions.
Corporations
A corporation’s deduction is generally limited to 10% of the corporation’s taxable income, computed with certain adjustments. The percentage limit was temporarily waived for qualified contributions made by a corporation after December 31, 2017, and before February 19, 2020, for relief efforts in qualified disaster areas. However, under the CARES Act, the percentage limitation on the charitable contribution deduction for corporations is increased to 25% for the 2020 tax year.
Food Inventory
Corporate and non-corporate taxpayers are entitled to an enhanced deduction for charitable donations of food inventory from any trade or business. The food inventory must consist of items fit for human consumption and be contributed to a qualified charity or private operating foundation for use in the care of the ill, the needy, or infants. Normally, a non-corporate taxpayer’s total deduction for food inventory donations during the tax year is limited to a maximum of 15% of the taxpayer’s net income from all trades and businesses from which the donations are made during the tax year. In the case of a C corporation, the deduction is limited to 15% of the corporation’s taxable income. Now, under the CARES Act, the deduction for the contribution of food inventory increased to 25% for the 2020 tax year.
If you have any questions regarding these increased deduction limits for charitable contributions, please contact Hoffman & Associates at info@hoffmanestatelaw.com or 404-255-7400.
