There are some provisions in the CARES Act that are not getting a lot of play right now – probably because it is not immediate money in business or individual’s hands. Through charitable donations, CARES Act money can be money for nonprofit organizations, though.
So while we will see how this comes into play on 2020 tax returns, it is definitely something that you can work into your budget now, if you have the ability to do so.
Because of the Tax Cuts and Jobs Act (TCJA) more people are taking standard deductions and not itemizing. There has been some anecdotal evidence that this is a problem for nonprofit organizations. Well, the CARES Act allows an above-the-line deduction for up to $300 for charitable deductions. So even if you are not itemizing, you still get a deduction. Arizona has something similar if you don’t itemize – 25% deduction of your charitable contributions if you are not itemizing. You should be aware, however, that the federal deduction is not available for contributions to private foundations or donor advised funds.
Here is how the federal deduction works – the first $300 donated in 2020 goes towards this deduction. Any excess is carried over for five years, though not exactly sure how that works, because as of right now, it is unclear whether the $300 will extend beyond 2020.
But if you do itemize and are generous, there is also a benefit under the CARES Act for when you are filing your 2020 tax return. TCJA did increase the adjusted gross income percentage that could be used for cash donations. Prior to TCJA, the amounts were limited to 50% of your adjusted gross income. Post-TCJA, however, this percentage increased to 60%. Now, under the CARES Act, this amount is increased to 100% of your adjusted gross income. Please note that this does not apply to noncash contributions. It also does not apply to donations to private foundations or donor advised funds. Again, we are not sure if this will extend beyond 2020 or not.
It isn’t just individuals who are getting an increase in the amount that may be deductible for a contribution to a charity – corporations are also. Contributions by a corporation cannot exceed 10% of the taxable income of the corporation. Under the CARES Act, this percentage has been increased to 25% for donations made in 2020.
If you are feeling generous, there are some tax advantages for you in 2020.
Donna H Laubscher, CPA