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The CARES Act and Charitable Giving

September 22, 2020

Overview

For many businesses and individuals, charitable giving is a way to give back to the organizations or communities of their choosing while allowing them to qualify for tax deductions. Starting in 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) expands the deductibility of charitable contributions to incentive charitable giving during 2020. To qualify for the CARES Act tax breaks, it is important to note that the donation does not have to be related to COVID-19 relief efforts.

For individual taxpayers who take the standard deduction: The CARES Act allows for an income tax deduction of charitable gifts up to $300. This is referred to as the “universal deduction.” It’s an “above the line” deduction, meaning it may be subtracted from the taxpayer’s gross income before the taxpayer’s adjusted gross income is calculated.

The requirements for deductibility:

  • Donations must be in cash. This does not apply to contributions to property, marketable securities, real property, or otherwise.
  • The donation must be to public charity. This means that donations to donor advised funds or most private foundations will not qualify.
  • The donation must be made in 2020; however, the universal deduction will extend beyond the 2020 tax year.

For individual taxpayers who do itemize deductions: With the passing of the CARES Act, individual taxpayers who itemize their deductions may now deduct charitable contributions up to 100% of the taxpayer’s adjusted gross income. Prior to the CARES Act, taxpayers were limited to deducting charitable contributions up to 60% of the taxpayer’s adjusted gross income.

The requirements for deductibility:

  • Donations must be in cash.
  • Donations must be made to a public charity (not to a donor advised fund or most private foundations).
  • Donations must be made during 2020.

If a donor gives more than 100% of their adjusted gross income, the donor may carry forward excess deductions for up to five subsequent tax years.

For corporate taxpayers: Corporations may deduct up to 25% of taxable income. This is up from the 10% limit, which generally applied to corporations prior to the CARES Act.

The requirements for deductibility:

  • Donations must be in cash.
  • Donations must be made to a public charity (not to a donor advised fund or most private foundations).
  • Donations must be made during 2020.

For assistance understanding the CARES Act or legal issues related to tax and estate planning, we encourage you to engage with a Schwabe attorney today.

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