The CARES Act Includes Many Tax Incentives for Employers - Charitable Contribution Modifications
March 30, 2020
By Jay Jetter, Carlene Lowry and Soheila Shahidi
On Friday, March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) into law. Among the numerous provisions of the Act intended to provide economic relief to individuals and businesses, there are incentives for charitable giving.
Individuals Taking Standard Deduction
One incentive applies to individuals who do not elect to itemize. Such individuals may receive a $300 above-the-line charitable deduction in addition to the standard deduction for tax years beginning in 2020 for a “qualified charitable contribution.” Qualified charitable contributions are cash contributions that, among other requirements, are: (i) made to public charities that are not supporting organizations or certain private foundations, and (ii) not for establishment of a new or maintenance of an existing donor-advised fund. In addition, a qualified charitable contribution does not include a carryover amount from a prior year.
Individuals Not Taking Standard Deduction
The Act also contains a temporary increase for 2020 on the charitable contribution deduction limit for cash contributions. The Act permits a charitable contribution deduction for individuals for cash contributions of up to 100% of adjusted gross income rather than up to 60% of such amount. As with the 60% limit, the contributions permitted pursuant to the increased cap may be made to public charities, governmental units, and certain private foundations. Any excess may be carried forward for up to five succeeding tax years.
Similarly, the Act increases the limit on the charitable deduction for cash contributions by corporations from 10% to 25% of taxable income. Any excess may be carried over for up to five succeeding years.
The increased limits only apply if an election is made. In the case of a partnership or S corporation, the election shall be made separately by each partner or shareholder. The increased limit does not apply to contributions to a supporting organization or to the establishment of a new, or maintenance of an existing, donor-advised fund.
The Act also increases the existing limit on the charitable contribution deduction of food inventory to a charitable organization to 25% from 15% of the applicable base, which depends upon the type of donor.