The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was passed into law on March 27, 2020. CARES is aimed at providing stimulus to the economy through relief to individuals and businesses, forbearance to those who had taken federal student loans, and provides incentives to encourage philanthropic giving in 2020. While most of us have heard about the individual stimulus checks, there are many other benefits of which donors should be aware.

The CARES Act makes changes to charitable deductions and charitable contribution limits that are beneficial to individuals, businesses, and organizations. Based on the current interpretation of the Act, we understand these changes to only apply to calendar year 2020. If you were considering a gift meaningful to you in 2021, you may want to talk with your tax adviser to see if making your gift in 2020 will put you in a better position.

New deduction for cash contributions up to $300 in 2020: Section 2204 of the CARES Act encourages donors who do not itemize their deductions, but rather use the new standard deduction, to also benefit from making a cash gift to a charitable organization. This is an “above-the-line” adjustment to income reducing taxable income. This adjustment is available for cash gifts and is limited to $300 per taxpayer ($600 for a married couple).

New deduction limits increase for cash gifts in 2020: Section 2205 of the CARES Act allows individual taxpayers who itemize their deductions to suspend the normal limit on deductions for contributions. This provision suspends the limit ordinarily set at 50-60% of adjusted gross income (AGI) and increases it up to 100%. You cannot deduct more than 100% of your AGI, but you won’t lose the deduction for the excess amount - you can use it next year, as has always been the case. This provision is very favorable to donors who have been considering a generous cash contribution since the deductibility is not curbed by percentage limitations. This increase only applies to gifts to public charities, not to private family foundations or donor advised funds. This section also increases the taxable income limit that applies to cash contributions made by corporations to charitable organizations from 10% to 25% for 2020. Qualified cash contributions in excess of the 25% limit can be carried forward for up to 5 years under the usual limits. This provision also increases the limitation on deductions for contributions of food inventory from 15 percent to 25 percent. In the case of charitable contributions by partnerships or S corporations, each partner or shareholder must separately elect to use the modified percentage limitations.

Required minimum distributions suspended: Section 2203 of the CARES Act temporarily suspends the requirements for required minimum distributions (RMD) for the 2020 tax year. However, if you are of qualifying age (between 70.5-72 years old depending on your birth year), you can still take the RMD and make a gift from your IRA by transferring up to $100,000 and exclude that amount from taxable income. Furthermore, since the gift does not count as income, it can reduce your annual income level, which may lower your Medicare premiums and decrease the amount of Social Security that is subject to tax. You benefit even if you do not itemize your deductions. You can also name a charitable organization, such as the Prince George’s Community College Foundation, Inc., as a beneficiary for the future.

There are some limitations to the benefits of CARES: It is important to note that while you might reap other tax benefits by donating appreciated securities/stock, the CARES Act only applies to gifts of cash. Contributions to a supporting organization or to a sponsoring organization for the establishment of a new donor advised fund or to be added to an existing donor advised fund do not qualify for any of the above benefits. Charitable contributions carried over from a prior tax year (before 2020) are excluded from this temporary relief and are subject to previous limitations in the tax code.

DISCLAIMER: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
   

 

To learn more contact the Prince George's Community College Foundation at foundation@pgcc.edu or call 301-546-0858. 

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