CARES ACT – Impacts on Charitable Contribution Deductions

The CARES Act (hereinafter “the Act”) was enacted to provide emergency assistance in light of the 2020 Coronavirus pandemic.  With this Act comes significant change to the law to help taxpayers. This includes the following: “partial above the line deduction for charitable contributions,” and the “temporary suspension of limitations on certain cash contributions” laid out in Sections §§ 2204 & 2205 of the Act, respectively. 

In Section 2204, above the line charitable deductions are now allowed as “adjustments to income,” meaning, they act as a reduction of your overall income resulting in a taxpayers’ Adjusted Gross Income (“AGI”).  In 2020, any individual who uses the standard deduction and does not itemize in preparing their tax return, may now additionally deduct “qualified charitable contributions” of up to $300.00.

Charitable deductions include any asset donation to an organization which has §501(c)(3) status according to the Internal Revenue Service.  These types of organizations usually operate for a religious, medical, educational, governmental, scientific, or similar purpose in order to provide a public benefit. In order to “qualify,” the contribution must be made in cash, to an organization meeting the §501(c)(3) criteria (but excluding certain §509(a)(3) supporting organizations and donor advised funds). 

Section 2105 allows for a temporary suspension of the limitations on cash contributions for both (i) individuals using the itemized deduction method and (ii) corporations.  Ordinarily, an individual taxpayer using itemized deductions is limited to a deduction that does not exceed 50% of the taxpayer’s AGI, while a Corporation is limited to a deduction of 10% of their pre-contributions income. 

These limitations are currently suspended as follows:

1. Individual – any qualified charitable contribution can now be deducted as long as the contributions do not exceed the excess of the taxpayers AGI in its entirety, and 
2. Corporation – the limitation is expanded to allow the corporation to now deduct up to 25% of their pre-contributions income using charitable deductions that are paid in cash or food inventory.

If the contributions exceed the Act’s provisions, both individuals and corporations may apply the carryover amount to the next five (5) succeeding taxable years.

While the full effect of the Coronavirus pandemic remains to be seen, it is the hope that these types of deductions can incentivize taxpayers to make continued charitable contributions to help restore the economy as well as the lives of many of our citizens.

Please visit our Coronavirus resource page at schneiderdowns.com/our-thoughts-on/category/Coronavirus for related content.