Deduct More of your Charitable Contributions in 2020 Under the CARES Act

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By Pooja Srivastava

Many charities are seeing a shortfall of income during the coronavirus (COVID-19) pandemic. To help make up this gap, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) has increased the amount of cash donations to public charities that both individuals and businesses can deduct on their 2020 income taxes.

  Deduction limits for cash donations to public charities Deduction limits for donations to private foundations
Individual 100% of Adjusted Gross Income (AGI): donations more than this amount can be carried over to future years 60% of AGI
Corporations 25% 10%

Donor advised funds (DAF) do not qualify for the new public charity deduction limits.

For taxpayers who do not itemize their deductions, they can take a $300 standard deduction (or $600 for married couples) that reduces their AGI. Donations made since January 1 will count toward the $300 cap.

which charitable contributions qualify?

Under the CARES Act,[1] charitable donations qualify for deduction on your tax returns if they meet all the following criteria:

  • Cash donations
  • Charitable deductions are already allowed in this category
  • The donation is made to certain publicly supported charities, such as 501(c)(3) nonprofits
  • The donor did not expect to receive a financial benefit for their donation[2]

contributions from individual retirement accounts (IRAs)

Required minimum distributions (RMDs) from IRAs for 2020 can be delayed until 2021. However, individuals can still donate up to $100,000 to charities to reduce their taxable IRA balance.

Additional considerations

  • Taxpayers who want to deduct charitable contributions must elect to do so on their 2020 tax returns.
  • For charitable contributions that flow through from a partnership or S corporation, each partner or shareholder must make the election separately on their tax returns.
  • C corporations may now deduct up to 25% of their taxable income on food inventory donations (up from 15% previously).
  • Qualified contributions must be made on or after January 1, 2020, but on or before December 31, 2020.
  • For donations made above the annual limits, taxpayers can deduct the excess amount on their tax returns during the following year.

Conclusion

For help planning for your 2020 charitable contributions and saving on your taxes, please contact an experienced Chugh, LLP CPA at info@chugh.com.