Looking Ahead: Tax Breaks for Charitable Contributions

Earlier this year, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help mitigate the health and economic effects of the COVID-19 pandemic.  A portion of this act is designed to incentivize taxpayers to boost their donations to qualified charities throughout 2020 by offering a new tax deduction and expanding deductibility limits.

In prior years, taxpayers could not deduct any charitable contributions made if they used the standard deduction. Under the CARES Act however, these individuals will be able to claim a new deduction of up to $300 per donor ($600 if married filing jointly) for charitable cash gifts on their 2020 tax return. This “above-the-line” deduction will directly reduce a taxpayer’s adjusted gross income and thus, their taxable income. Please note that this deduction is available only for taxpayers claiming the standard deduction on their 2020 tax return; in addition, donors must make these cash contributions to qualified public charities.

For those who itemize instead, the CARES Act expanded charitable deduction limitations. In previous years, the IRS enacted a cap on deductibility of these gifts equal to 60% of the taxpayer’s adjusted gross income, or AGI. For the 2020 tax year, individuals will be able to deduct offerings of up to 100% of their AGI. The CARES Act also changed this limit for corporations from 10% of taxable income to 25%. As previously mentioned, taxpayers must donate to qualified, 501(c)(3) organizations.

For more information regarding charitable contributions and available deductions for tax year 2020, please contact our office, 615-750-5537.