The impacts of the COVID-19 pandemic have triggered an even greater need for charitable giving to keep various organizations afloat. Whether you are a small or large donor, the Coronavirus Aid, Relief, and Economic Security (CARES) Act includes several tax incentives that make charitable giving easier and more advantageous than before.
Deductions for Charitable Contributions
Under the CARES Act, individual taxpayers involved in charitable giving have a clear path to receiving expanded deductions for the contributions they make. Those individual taxpayers who choose not to itemize on their income tax forms can benefit from a new above-the-line $300 deduction for cash contributions they make to qualified charities in 2020. Above-the-line deductions effectively act to reduce the taxpayer’s adjusted gross income (AGI). In addition to the above-the-line deduction, these taxpayers are also entitled to take their standard deduction.
The CARES Act also increases the limitation on charitable deductions for those cash contributions made to public charities in 2020, raising the limitation from 60% of AGI to 100%. It is not required that the charitable giving be related to a COVID-19 initiative in order for the donor to receive the benefit.
Be Sure to Take the Necessary Steps When Donating
Regardless of whether you’re an individual donor or you are committing to charitable giving on behalf of a larger organization, you must be certain that you are donating to a qualified charity in order to claim the donation deduction. Visiting the IRS’s searchable Tax Exempt Organization page can help you ensure that the charity you’re donating to will qualify you for receiving a tax deduction on the contribution you make. Additionally, the IRS tool gives you access to financial information for the charities you’re considering contributing to, including the Form 990 tax return and IRS determination letters.
You can further protect your charitable giving by restricting how your donation will be used and by utilizing a written gift or endowment fund agreement. These documents allow you to express, in writing, exactly what you would like your contribution to exclusively go towards such as the funding of research initiatives or aiding specific groups of individuals. By including this additional information with your gift, you can help safeguard that your donation will be used in the way you had intended when you were inspired to support the charity.
If you have questions about how the CARES Act affects your charitable giving or the tax-deductibility of your donations, contact your Untracht Early advisor for additional guidance.