CARES Act: Expanded Opportunities for Charitable Giving in 2020

7/1/2020 - By Elizabeth S. Varhalla, CPA

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a $2 trillion economic stimulus package that was signed into law on March 27, 2020, to help our country navigate the COVID-19 Pandemic. Included in the CARES Act are three changes to current tax law that impact the effect your charitable giving will have on your 2020 tax returns.

These are favorable changes that will contribute to a lower tax liability on your 2020 form 1040 and were made to not only stimulate the economy but also to encourage Americans to continue to support charitable organizations during these trying times. Below is a brief overview of the changes you need to note.

Cash Contributions Cap Now 100% Of AGI

If you can itemize deductions on your tax return, the cap for your cash charitable donation deduction has been lifted from 60% up to 100% of your adjusted gross income, so you’ll have the opportunity for a much larger charitable deduction in 2020. Theoretically, your taxable income could be zeroed out by charitable donations. If your contributions exceed the limitation, you can still carry forward and utilize the excess amount over the next 5 years. Please note that the increased limit is for cash contributions only and is limited to gifts to public charities and certain foundations. Also, note that the increased limits do not apply to gifts to donor-advised funds.

New Above-The-Line Charitable Deduction

The 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction amounts for individual taxpayers, and 90% of taxpayers can no longer itemize deductions on their tax returns. And, while most of us continue to contribute to charitable organizations, we miss seeing that deduction for our charitable giving on our tax returns. The CARES Act includes a new “above the line” charitable deduction of $300 for single taxpayers and $600 for taxpayers who are filing married filing jointly in 2020. So, even though you must take the standard deduction, you can still get a nice tax break for your charitable giving

RMDs Waived In 2020, So Consider A QCD

The CARES Act relieved taxpayers from the obligation to take Required Minimum Distributions (RMDs) from Individual Retirement Accounts in 2020. For high-income taxpayers who do not need the IRA funds in 2020, consider taking your RMD anyway, and use those funds to make a Qualified Charitable Distribution to a charitable organization. A QCD is a distribution from an IRA that is sent directly from your IRA administrator to the charitable organization. Using a QCD, an individual over 70 ½ years old can donate up to $100,000 annually in IRA funds directly to a charity without having to include the distribution in taxable income. This is a great way to move funds out of your IRA without paying taxes on the income and to help support your favorite charity.

QUESTIONS?

Saltmarsh is here to guide you through these charitable changes. If you have specific questions or would like more information, please reach out to a member of our Tax Team.

Visit our COVID-19 RESOURCE HUB for ongoing updates and information. Due to the ever-changing nature of this event, you should always consult a professional.

About the Author | Beth Varhalla, CPA
Beth is a Shareholder in the Tax & Accounting Services Department of Saltmarsh, Cleaveland & Gund. Beth joined Saltmarsh in 1987 and her areas of experience include individual, corporate, and partnership tax services, along with financial accounting and QuickBooks services. Areas of specialization include law firms, real estate and healthcare companies.