As the year winds down, the fundraising efforts of many charitable organizations ramp up. This is for good reason as, on average, charitable organizations raise around 40% of their annual revenues during the holiday season.
As we've written earlier in the year on the DW Tax Blog, this year's "giving season" comes with a new wrinkle – generous tax benefits for charitable contributions provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act which was signed into law on March 27, 2020. A summary of these benefits, some of which are only available with respect to contributions made in 2020, follows.
New Charitable Deduction Available: A taxpayer who takes the standard deduction may deduct up to $300 in cash contributions to charities (other than private non-operating foundations, supporting organizations, and donor advised funds). This deduction is an "above the line" adjustment which reduces a taxpayer's adjusted gross income (AGI).
Increased Charitable Deduction Limits: Individual and corporate taxpayers that itemize may take advantage of increased limits on charitable deductions. An individual taxpayer may deduct cash contributions to public charities of up to 100% of the taxpayer's AGI (compared to 60% in 2019). A corporate taxpayer may deduct contributions to public charities of up to 25% of the taxpayer's taxable income (compared to 10% in 2019). These higher limitations do not apply to contributions to private foundations or donor advised funds.
Qualified Charitable Distributions: While the CARES Act suspended Required Minimum Distributions from many retirement accounts for 2020, qualified charitable distributions (QCDs) remain a viable strategy for the satisfaction of charitable goals for the year. Under the QCD strategy, an individual taxpayer may transfer up to $100,000 from the taxpayer's IRAs directly to one or more public charities and exclude such amount from the taxpayer's AGI. Such transfers also serve to reduce the taxpayer's taxable IRA balance. The QCD strategy is available to all individual taxpayers – itemizers and non-itemizers.
Many charitable organizations find themselves struggling during these unprecedented times. The need for their services has increased, while their donations and revenues have fallen behind. To combat this issue, the CARES Act provides additional incentive to taxpayers with the hope of stimulating philanthropy throughout the country. To what charity will you contribute?
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