CARES ACT: New Ways to Deduct Charitable Contributions on Your Tax Returns

The Coronavirus Aid, Relief, and Economic Security (CARES) Act increased the incentives of making charitable contributions to various non-profit organizations. You or your business may qualify for these new deductions.

Effective for 2020 tax returns, individuals do not have to itemize in order to take charitable contribution deductions. Individuals taking the standard deduction may qualify for an additional benefit of making cash donations to qualifying non-profit organizations. The deduction could be up to $300. Qualified non-profit organizations include churches, educational facilities with curriculums and regular attendance of students, some organizations with significant support from the government, and medical facilities. 

For the individuals that itemize, under the CARES Act, there is now no limit to the deductions you can take for charitable contributions. Previously, you could only deduct up to a maximum of 60% of your adjusted gross income (AGI) via charitable contributions. But under the new guidelines, 100% of your donation would now be tax deductible. For example, if your taxable income is $200,000 in 2020, and you give away $200,000 to qualified organizations in 2020, you won’t have to pay taxes on your income. An important exception to this rule is donations made to private foundations and donor advised funds still fall under the old rules of 60% of AGI.

C Corporations’ deductions for charitable contributions are now eligible for up to 25% of taxable income which is effective for 2020. In prior years, corporations could only deduct 10%.

In addition, Congress introduced pending legislation entitled “Universal Giving Pandemic Response Act” (S. 4032) which would further increase cash charitable contributions deduction up to 33% of the standard deduction. This bill would allow taxpayers who do not otherwise itemize their tax deductions to deduct from their gross income charitable contributions made in 2019 and 2020. Congress has not passed this bill yet. We will inform you of any updates if this legislation becomes law. 

Note that sufficient documentation for any charitable contributions should be maintained to substantiate any deductions on your tax returns. 

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.