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Charitable organizations and their donors may be able to benefit from certain provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The following provides a brief description of the major incentives.
Above-the-Line Charitable Contribution Deduction
The CARES Act allows for an above-the-line deduction of up to $300 of charitable contributions. In general, only those taxpayers who itemize deductions on their personal returns benefit tax-wise from charitable deductions, but this $300 deduction, although modest, might motivate those who don’t itemize to reduce their 2020 tax liability by making donations to qualifying charities, which include educational institutions, hospitals, churches, food banks, community foundations, medical research organizations and most other types of public charities. The $300 above-the-line deduction does not apply to contributions made to supporting organizations or donor advised funds.
Charitable contribution deduction up to 100% of AGI
Providing a much greater potential benefit for charitable organizations, the CARES Act modifies the Adjusted Gross Income (AGI) limitation on charitable contributions, allowing individual donors to deduct qualified cash donations of up to 100% of their AGI. Prior to the Act, that deduction was limited to 60% of AGI. This provision provides an opportunity for donors to reduce their 2020 tax bill while assisting charitable organizations of their choice.
Contributions made by corporate entities
In the case of a cash donation made by a corporation, the CARES Act allows for a deduction of up to 25% of the corporation’s 2020 taxable income, a favorable increase from the pre-CARES Act limitation of 10% taxable income.
Charitable organizations can be on the receiving end of substantial benefit as the result of the CARES Act; likewise, both personal and corporate donors can also reap rewards with a larger than usual tax deduction – and the good feeling that comes from donating to worthy causes.
Laura J. Kenney, CPA, MST is a principal and Rachael L. Dooley, CPA, MSA is a senior accountant within the tax department at blumshapiro. To learn more visit www.blumshapiro.com.