Under the Coronavirus Aid Relief and Economic Security Act (CARES Act), charitable contribution deductions have increased for both individuals and corporations.
New $300 Above-the-line deduction for charitable contributions
The CARES Act provides individual taxpayers a new $300 above-the-line deduction for qualified charitable contributions. The deduction decreases a taxpayer’s income prior to the calculation of their adjusted gross income which reduces their taxable income. This deduction is allowed if a taxpayer elects the standard deduction. Qualified charitable contributions are donations given in cash to qualified public charities made during the applicable tax year.
Taxpayers itemizing their deductions, will continue to report charitable contributions on Schedule A.
Increased the available deductions for Individuals
The CARES Act eliminated the Adjusted Gross Income (AGI) limit for individuals. An individual taxpayer may now elect to deduct 100% of their AGI for cash contributions. Previously, a taxpayer could only deduct qualified contributions up 60% of their AGI. Since there is no limit on the deduction amount a taxpayer may take, a large qualified contribution may result in zero tax liability.
Increased the available deductions for Corporations
The CARES Act also increased the charitable contributions deduction limit available for corporations. Corporations can now deduct up to 25% of their taxable income for qualified charitable contributions. This deduction increased from the previous 10% deduction limit available to corporations in 2019. Any donations in excess of the 25% may be carried forward for five years.
The increased limits for individuals and corporations apply to cash contributions only. If a taxpayer contributes property, stocks, or other personal property, the old limitations still apply, and a taxpayer must itemize their deductions in order to take advantage of the tax benefits.
Qualified Charitable Distributions
Taxpayers can still make a qualified charitable distribution to avoid taxable distribution from an IRA. However, the CARES Act suspended required minimum distributions (RMDs) for 2020. A qualified charitable distribution, therefore, will not offset any RMDs.
Is volunteering tax deductible?
In general, if a taxpayer volunteered with a registered organization and was not paid, they may be eligible to deduct certain travel expenses. Mileage is a deductible expense. The IRS mileage deduction changes every year so be sure to use the correct rate. In addition, a taxpayer may deduct public transit costs, gas, parking, and tolls.
What is not tax deductible?
In general, money or property given to individuals, homeowners associations, political groups, labor unions, among other things are not deductible. Donations to an individual or family using Facebook Fundraisers or GoFundMe are also, generally, not deductible.
The IRS requires that taxpayers keep record of donations. This can include either bank verification (such as bank statements) or written communication from the organization. If taxpayers contribute $250 or more, IRS requires that a written verification from the charity to be kept.
For noncash contribution, taxpayers must keep detailed description of the property donated and a receipt showing the name of the organization, location, and date of contribution. For higher end values, a third-party appraisal will be required to be kept.
Charitable Contributions Tips
- Don’t think twice about giving to a worthy cause, just make sure you understand the rules
- Keep good records for your deductions
- Think about charitable giving as a tax planning strategy