Charitable Contributions Enhancement Under the CARES ActBy Magdalena M. Czerniawski | May 27, 2020
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law by the President on March 27, 2020, includes many provisions that affect individuals, businesses and nonprofits. Aside from the often-discussed provisions relating to Payroll Protection Program (PPP) loans, there are also other provisions directly impacting the nonprofit community.
The first is the above-the-line deduction of $300 available for certain contributions to charities by individuals. Although the amount of the deduction is only $300, it can be taken by any individual filing a tax return even if they take the standard deduction. The Tax Cuts and Jobs Act of 2019 (TCJA) increased the standard deduction to $12,400 for single taxpayers and $24,800 for married taxpayers filing jointly. With the cap on state and local taxes at $10,000, most individuals defaulted to the standard deduction when filing their tax returns under the new law, leading to a drop in their donations. The research done after TCJA showed that the biggest drop in donations was in the small $100-$250 level. This temporary change in the law provides opportunities to those donors to contribute and receive a tax benefit. The deduction is allowed, provided it is given to a public charity but not a supporting organization, a private foundation or a Donor Advised Fund (DAF). This also makes sense because giving to any organization other than a public charity would delay the actual impact. For instance, DAFs do not require the distribution of the monies to the charity right away, and private foundations only must distribute 5% of the average fair market value of their non-charitable assets to public charities. This applies to any donations made in 2020.
Change in Deduction Limit Previously Imposed by TCJA
In addition to the above, the CARES Act changed the deduction limit previously imposed by TCJA. Individuals who itemize their deductions can take an increased charitable contribution deduction up to 100% of their Adjusted Gross Income. If the contributions, which must be made in cash to qualified charities, are above the 100% level, they can be carried forward up to five years. Those individuals cannot take advantage of the $300 above-the-line deduction. This provision is attracting higher-level donors and saving them additional tax dollars. Individuals who want to take advantage of this must make an election to receive this benefit. The contributions also must be made to public charities excluding supporting organizations, and not to private foundations or DAFs.
Contributions made by a partnership or an S-Corporation will be passed on to its partners who then will be subject to the individual rules. The above-mentioned election needs to be made at the partner/shareholder level.
Charitable Deduction Incentives for C-Corporations
Lastly, the CARES Act also provided additional charitable deduction incentives for C-Corporations. This again comes in the form of an increased deduction limit. The prior law allowed the deduction of cash contributions to charitable organizations up to 10% of taxable income. The CARES Act increases that deduction amount up to 25%, with an excess allowed to be carried forward for up to five years. In addition, the deduction of food inventory to a qualified charity is increased from 15% to 25%. Again, all of these contributions must be made in cash, with the exception of food inventories, and to public charities, again excluding supporting organizations, private foundations and DAFs.
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A version of this article will be published as a blog by Delivering Good, a charity for new product donations made by companies in the fashion, home and children’s industries.
About Magdalena M. Czerniawski
Magdalena M. Czerniawski, CPA, MBA, is a Partner at Marks Paneth LLP and a member of the firm’s Nonprofit, Government & Healthcare Group. With over 15 years of nonprofit industry experience, she provides tax services to a wide array of nonprofits, including charitable organizations, schools, social welfare organizations, professional associations and private foundations. In addition to providing tax planning and advisory services, Ms. Czerniawski specializes in matters related to ASC 740-10 (FIN 48), the reporting... READ MORE +