By Rebecca Hinton and Ryan Gonzales
The CARES (Coronavirus Aid, Relief, and Economic Security) Act, enacted on March 27, 2020, includes several tax incentives and provisions affecting businesses and individuals, including the temporary provision under which donors of cash gifts to public charities do not face any income limitation on the deductibility for charitable contributions through the end of 2020. Accordingly, a donor can claim an income tax deduction for cash contributions directly to public charities of up to 100 percent of the donor’s income in 2020.
Previously, an individual was not able to deduct more than 60 percent of their contribution base, generally adjusted gross income (AGI), for cash gifts made to public charities (for those taxpayers who itemize their deductions). This enhanced gifting incentive applies to cash contributions to public charities only and does not apply to contributions to most private foundations, donor advised funds or supporting organizations.
The new temporary measure, as a result of Sections 2104 and 2105 of the CARES Act, was designed to encourage donations to charitable organizations at a time when many are in need through the rest of the year, and certain tax-exempt charitable organizations can use these provisions to encourage donors to provide additional support.
For donors who do not itemize their deductions on their federal taxes, the CARES Act uniquely permits donors a temporary above-the-line charitable deduction, up to $300, and $600 for married couples, for cash contributions by individuals to public charities, in addition to the standard deduction otherwise available to them. As with the deduction available to taxpayers who itemize their deductions, this above-the-line deduction applies only for cash gifts to public charities, and does not apply to contributions to most private foundations, donor advised funds or supporting organizations.
For corporations, the 10 percent limitation on charitable contributions was increased to 25 percent of taxable income as an allowable deduction amount. The limitation on deductions for contributions of food inventory also increased from 15 percent to 25 percent.
The CARES Act allows full charitable contribution deductions for donations to private operating foundations, which are defined as foundations that spend at least 85 percent of their adjusted net income or their minimum investment return, whichever is less, directly for the active conduct of their exempt activities.
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