By Chris Montgomery
In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. It was a $2 trillion economic stimulus package intended to provide relief to individuals and corporations impacted by the COVID-19 pandemic. The CARES Act includes several provisions designed to encourage charitable giving. This article provides a high-level overview of those provisions.
New “Above-the-Line” Deduction: Up to $300 per taxpayer ($600 for a married couple) in annual charitable contributions is available to people who take the standard (non-itemized) déductions. This “above-the-line” deduction will reduce a donor’s taxable income. However, a donation to a donor advised fund (DAF) does not qualify for this new deduction.
Modified Charitable Deduction Limits: For individuals and corporations that itemize their deductions, the amount of the deductions was temporarily increased. Individuals can deduct donations up to 100% of their 2020 adjusted gross income (up from 60%). Corporations may deduct up to 25% of taxable income (up from 10%). As with the new “above-the-line” deduction described above a donation to a DAF does not qualify for the increased déduction amounts.
Modified Deduction for Food Donations: The CARES Act also increased the amount a taxpayer engaged in a trade or business may deduct for the charitable donation of food inventory, raising the deduction to 25% of the taxpayer’s taxable income (up from 15%).
Changes to Required Minimum Distributions: Under the CARES Act, the required minimum distribution (RMD) from a tax-deferred retirement account for individuals over age 70 1/2 is suspended until 2021. The RMD allows donors to donate directly from their IRA to a charity through a qualified charitable contribution (QCD) and avoid taxable income in the process. The suspension of the RMD may reduce the incentive for a donor to directly contribute to a charity from a retirement account as in previous years. That said, the tax benefit of the QCD remains, so donors directing a QCD to charity this year (up to $100,000 per individual) will still reduce their taxable IRA balance.
The information contained in this article is not intended as legal or tax advice. For such advice, please consult an attorney or tax advisor.