CARES Act Expands Charitable Giving Tax Breaks

Tax incentives for charitable giving were expanded in the CARES Act. The incentives provide additional giving opportunities for taxpayers who aren’t cash-strapped as a result of the hibernation economy and want to help those who are in financial distress.The regular rule limits the annual tax deductions for charitable gifts.

Individuals can’t deduct more than 60% of adjusted gross income (AGI) for cash charitable contributions, or 50% of AGI for contributions made in a combination of cash and other property. For corporations, deductions for contributions are limited to 10% of taxable income.

Contributions that exceed the limits can be carried forward to future years to be deducted. There are additional limits for donations to charities other than public charities and donations of certain types of assets.

For 2020, some of the contributions limits are increased.Individuals can deduct charitable contributions of up to 100% of their AGI in 2020, and corporations can deduct charitable contributions of up to 25% of taxable income. Individual taxpayers must itemize deductions to take advantage of this provision.

The new limits apply only to contributions of cash. In addition, the new limits don’t apply to contributions made to private foundations (other than pass-through foundations and private operating foundations), donor-advised funds, or supporting organizations. There are some tricks in the 100% limitation.

If your charitable contributions exceed 100% of taxable income, you don’t get to carry forward to future years any of the excess contributions. You lose the tax deduction for them.It is a good idea to make different charitable contributions during the year and be sure the total doesn’t exceed your taxable income after all other deductions.

You might be better off not electing to use the 100% limit and instead stay with the usual limit. That would allow you to carry forward excess contributions for up to five years.Taxpayers who don’t itemize expenses also received a charitable-giving incentive in the CARES Act.

Non-itemizers can deduct from gross income up to $300 of cash contributions to qualified charities. Not all charities qualify for this treatment. Qualifying charities are churches, schools, hospitals or other medical organizations or other organizations described in §170(b)(1)(A) of the code.The other charitable giving provisions of the tax law remain intact.