What you should know about the 2020 CARES Act

New Deduction for 2020 and 2021

Up to $300* in annual charitable contributions for people who take the standard deduction (for taxpayers who do not itemize their deductions). It is an “above the line” adjustment to income that will reduce a donor’s adjusted gross income (AGI), and thereby reduce taxable income. A donation to a donor advised fund (DAF) does not qualify for this new deduction.

For 2020, this is only $300 per filing, not $300/person, with $600 for a married couple filing jointly.  However, with the extension passed the end of December, in 2021 it can be applied per individual, up to $600 for a joint filing.

 

New Charitable Deduction Limits: for 2020

As part of the bill, individuals and corporations that itemize can deduct much greater amounts of their contributions. Individuals can elect to deduct donations up to 100% of their 2020 AGI (up from 60% previously). Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%. The new deduction is for gifts that go to a public charity, such as Palouse Habitat for Humanity. The old deduction rules apply to gifts to private foundations. The higher deduction does not apply to donations directly to a DAF. The new limits do not apply to gifts of appreciated stock. Finally, if your assets are substantial enough that you can give more than your income this year, you won’t lose the deduction for the excess amount. You can use it next year, as has always been the case.

 

Required minimum distributions waived for most donors:

Required minimum distributions (RMD) that would have had to start in 2020 (individuals over the age of 70 ½) do not have to start until 2021, including distributions from defined benefit pension plans and 457 plans. This change will dampen somewhat the incentive for a donor to make a qualified charitable distribution (QCD) from their IRA in 2020. Even so, making a QCD this year will still allow itemizers and non-itemizers alike to direct up to $100,000 from their IRA to charities in a tax efficient manner. In other words, donors directing a QCD to a nonprofit this year (up to $100,000 per individual) will still reduce their taxable IRA balance. This allows all taxpayers, itemizers and non-itemizers alike, to direct gifts from their IRA to charities in a tax efficient manner.

*This information is not intended as legal or tax advice. For such advice, please consult an attorney or tax advisor. Figures cited in any examples are for illustrative purposes only. References to tax rates include federal taxes only and are subject to change. State law may further impact your individual results.