2020 CHARITABLE CONTRIBUTIONS: CARES Act Changes Deductions

On the cusp of the end of 2020, and good riddance to it, the CARES Act expanded the deductibility of 2020 charitable contributions for businesses and individuals.

Before going into the specifics of the new rules, I’d like to comment on the actions of people and organizations in times of tragedy. In an increasingly cynical world, the outpouring of support for those in need, without expectation of personal gain, renews my belief in the innate goodness and caring of humankind.

If you are a business or individual that stepped up to help others, or are still looking for ways to help, there’s good news on the tax front.

For 2020 only, individuals that take the standard deduction ($24,800 and $12,400 for joint returns and single returns respectively) and don’t itemize their deductions, can take an additional “above the line” deduction of $300 for charitable contributions of cash.  For individuals that do itemize, cash contributions of up to 100% (up from 60%) of AGI are deductible, and excess amounts can be carried forward for up to 5 years.

For cash contributions by businesses taxed as C corporations, deductions of up to 25% (up from 10%) of taxable income are deductible. Donations of food inventory, normally equal to the lesser of (1) basis plus one-half of fair market value in excess of basis or (2) two times basis, has been increased to 25% of taxable income.

For “pass-through” entities (sole proprietorships, partnerships, S corporation, and limited liability companies), cash charitable deductions by the entity are deducted on the owner’s personal tax return and subject to the expanded 2020 limits and rules for individuals. Donations of food inventory by pass through entities are subject to the same limits as C corporations (25% of net income).

The CARES Act also contained provisions related to qualified charitable distributions of up to $100,000 from an IRA for those who are over the age of 70 and a half.

By strategically utilizing 2020’s changes in charitable deductions, you can minimize your taxes, while at the same time help someone in need.

If you need help maximizing your charitable deductions for 2020,  contact ARI.