The CARES Act authorized $2 trillion in relief aid to all corners of the U.S. economy due to the COVID-19 pandemic.
Although not meant to be an exhaustive summary of all of the aspects of the law, here are a few ways that this may affect how you decide to support Trinity College and other charitable institutions in this tax year.
- Changes in deductibility for donors who itemize:
For the 2020 tax year, the limit of deductibility of charitable contributions to public charities has been raised to 100% of AGI. This increased limit is for cash contributions as opposed to donations of stock, real estate, or any other non-cash items. Typically, an individual’s charitable deduction for a gift of cash is limited to, at most, 60% of their adjusted gross income (AGI). Gifts to donor advised funds (DAFs) or to private foundations do not qualify. Suspending this limitation allows individuals to deduct donations that would otherwise exceed the AGI caps in this taxable year. Any amount contributed that exceeds AGI may be carried forward and treated as a charitable deduction for up to the next 5 successive tax years, subject to the typical charitable contribution limitations. The carryforward will be subject to the normal 60% of AGI limit, as are cash deductions carried forward from past years.
There may be instances in which a donor may not want to make the 100% election. Donors should, as always, consult their tax advisers to determine if the 100% election makes sense for their particular tax circumstance.
- Charitable deduction for non-itemizers:
The CARES Act allows donors who do not itemize (i.e., they take the standard deduction which is $12,400 for singles or $24,800 for married-filing jointly) to claim a charitable deduction of up to $300 in the 2020 tax year. This provision was inserted specifically to encourage charitable giving this year. It is an “above-the-line” adjustment to income that will reduce a donor’s adjusted gross income (AGI) and thereby reduce his/her taxable income. Thus, the taxpayer may take the standard deduction and also deduct the amount of his/her donation from his/her AGI. This adjustment is available for cash gifts to public charities only and is limited to $300 per tax-filing unit. This provision does not apply to deductions carried forward from prior years.
- Corporate contributions:
The CARES Act also raises the corporate contribution limitation for gifts of cash from 10% of AGI to 25% for tax year 2020. Similar to the individual deduction, if the contributions exceed the amount able to be taken, the excess may be carried over and used as a charitable contribution deduction for the next 5 successive tax years, subject to certain conditions and the 10% limitation. Further, the limitations on contributions of corporate food inventory is also increased from 15% to 25% for tax year 2020.
- Increase in deduction for contributions of food:
Although this does not really impact donations to Trinity, donors should note that the CARES Act increased the limit on deductibility of the charitable contribution of food in 2020 from a taxpayer’s trade or business, from 15% to 25% of the taxpayer’s taxable income.
- Required Minimum Distributions:
The CARES Act impacts owners of Individual Retirement Accounts (IRAs) by providing a temporary waiver of Required Minimum Distributions (RMDs) for 2020. Minimum distributions will not be required from IRAs, 401(k)s, 403(b)s and most other defined contribution plans maintained by an employer for individuals, allowing IRA owners age 72 and older to keep more of their funds in their IRAs and other qualified retirement plans. The decreased value of their portfolios may motivate some people to keep funds in their accounts temporarily, waiting to see what happens in the investment markets. You may still make direct distributions to charity from your IRA, just as before, if it makes financial sense for you to do so.
Required minimum distributions that would have had to start in 2020 don’t have to start until 2021.