The Coronavirus Aid Relief and Economic Securities Act, also known as the CARES Act, was enacted by Congress in March 2020 and includes significant tax relief and charitable giving benefits. This Act signifies a long-overdue attempt to stimulate philanthropy and could make a significant impact to cash-starved nonprofits.
It is critical that nonprofits (and charitable contributors) not miss this temporary opportunity as the change involves real money for both contributors and recipients. While the CARES Act provided many economic benefits, this provision has received relatively minimal attention. For this reason, nonprofits should inform their donors and followers who might not know this temporary benefit is available to them.
As it pertains to charitable giving, provisions of the Act apply as follows:
Individuals that Don’t Itemize
The CARES Act makes a new charitable deduction available to individual taxpayers that do not itemize their deductions. This new benefit, also referred to as a universal deduction, allows for a charitable deduction of up to $300 per individual. This is an above-the-line contribution that is deducted from the individual taxpayer’s income prior to the calculation of their adjusted gross income. This is the one charitable giving benefit that will extend beyond the 2020 tax year.
Individuals that Do Itemize
For those individuals that do itemize, the adjusted gross income (AGI) limit for cash contributions was increased. For cash contributions made in 2020, individuals can now elect to deduct up to 100 percent of their AGI (increased from 60 percent).
The AGI limit for cash contributions was also increased for corporate donors. Corporations can now deduct up to 25 percent of taxable income (increased from 10 percent).
What Contributions are Eligible?
For either individual or corporate donors to receive this benefit, they must make a qualified cash contribution to a public charity. The increased limits apply only to cash donations, meaning contributions of property, such as real assets and marketable securities, do not qualify.
What Contributions are Not Eligible?
There are some exceptions, but for the most part contributions to family foundations, corporate foundations, private non-operating foundations, donor-advised funds, and supporting organizations under code Section 509(a)(3) would not qualify as a recipient. This is especially important to note within the context of COVID-19 relief work, as many supporting organizations are affiliated with institutions like hospitals and universities.
It is important to note that while contributions to the above do not qualify for the enhanced provisions of the CARES Act, there were no changes to existing laws regulating these contributions.
Whether you are a nonprofit looking for more information for donors, or a donor wanting to maximize your deductions, our team at BerganKDV is here to help. Start here.