2020 CARES Act Brings Changes to Charitable Giving to Motivate DonorsApril 1, 2020
A Guest Blog Post by Dennis Crandall, Hanna’s Donor Relations Director
These are difficult times for everyone. We find ourselves in uncharted waters while the demand for our services continues to grow. The challenges facing everyone in this world are many ~ our physical, mental and spiritual health; financial issues of all types; loss of employment and work stress…just to name a few. In the midst of all the current COVID-19 crisis brings to us, I write this blog, in good faith, to make sure that our generous Hanna supporters are aware of the positive components of the CARES Act that directly affect the tax issues in charitable giving.
The Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law on Friday, March 27, 2020 to help individuals and businesses affected by COVID-19. This legislation has brought about sweeping changes meant to provide financial relief to individuals and businesses. As part of the CARES Act, certain changes were made with respect to the tax benefits to incentivize charitable giving. I am truly excited that our lawmakers chose to not only help individuals and businesses, but also included in the law all non-profit organizations, like Hanna Boys Center, whose work is critical in providing the many services needed in our society.
Here are some of the changes all our donors need to know:
1. $300 Cash Contribution Deduction Beginning in 2020, and each year thereafter, (this is not limited to only 2020), individuals can take a $300 above-the-line deduction for cash contributions to charities, regardless of whether or not the individual itemizes deductions.
2. Enhanced Charitable Contribution Limits for Individuals and Corporations Generally, individuals that itemize deductions are limited with respect to the amount of deductions available for charitable contributions made during the year. These limits are typically determined by a percentage of the individual’s adjusted gross income (AGI). Corporations are subject to similar restrictions limited by the corporation’s taxable income. As a result of the CARES Act, for individuals that itemize deductions, the 60% of adjusted gross income (AGI) limit that previously applied for qualifying cash contributions to public charities will not apply for 2020.
Thus, individuals will be eligible for a deduction up to 100% of AGI in 2020 for qualifying cash contributions. For corporations, the 10% limit on deductions for charitable contributions has been increased to 25% of taxable income. This means individuals can eliminate their 2020 tax bill in its entirety through qualified contributions to charities. Additionally, contributions that exceed your 2020 AGI may be carried forward for up to 5 years. Please contact a tax professional if you have any questions about how these changes may impact your tax picture.
The new charitable giving incentives under the CARES Act will only apply to cash donations, not donations of stock, real estate or other non-cash types of property. In addition, the contributions must be to public charities, like Hanna Boys Center – not private foundations or donor-advised funds.
3. The Suspension of Required Minimum Distributions The CARES Act waives Required Minimum Distributions (RMDs) during 2020. This provision is far-reaching and applies to traditional IRAs, SEP IRAs, and SIMPLE IRAS in addition to 401(k), 403(b), and Governmental 457(b) plans for both retirement account owners and beneficiaries.
Planning Opportunities for IRA Distributions to Charities: Because of the unlimited charitable deduction allowed for cash gifts to eligible charities this year, a taxpayer can, in effect, take a tax-free distribution from their IRA. By making a taxable withdrawal from an IRA, and making an identical cash donation to a public charity, you will be able to offset the taxable IRA distribution, regardless of the amount. This may present real planning opportunities for charities and donors.
Tax Deadline and Charitable Contributions By now, I’m sure you are aware that the Federal income tax filing deadline has been delayed three months to July 15th. Most states, including California, have changed their income tax deadline to align with the July 15th Federal deadline.
Conclusion The CARES Act is over 900 pages in length, so by no means does this blog cover all the intricacies of the legislation. However, we hope this blog does provide some clarity about the ways in which our government is aiming to tackle these unprecedented circumstances, with regards to charitable giving. This new legislation may change some of your personal finances in the areas of cash flow planning, making gifts to charities, and tax liabilities for the year ahead.
DISCLAIMER: This blog is by no means meant to give the professional tax and financial planning advice which fits every donor. I advise all our donors to consult their tax and financial advisors before making any decisions regarding your donations to your favorite charities, including Hanna Boys Center.
My prayers to all!