Recognizing that the coronavirus pandemic may negatively impact charitable contribution, the recently passed “CARES Act” made important changes to charitable contribution rules. Listed below is a summary of those changes:
Non-itemizing Individual Taxpayers.
For tax years beginning in 2020, eligible taxpayers are entitled to an above-the-line deduction of up to $300 for qualified charitable contributions. An eligible taxpayer is an individual that does not itemize deductions. A qualified charitable contribution is a cash contribution to a qualified tax-exempt organization. Individuals may find this provision important due to the increased standard deduction amount that made the threshold for itemizing beyond reach for many taxpayers.
Itemizing Individual Taxpayers.
For the 2020 tax year, the deduction percentage limitation for charitable contributions of cash has been removed for individual taxpayers. The TCJA had provided for an increased limitation of 60% for cash contributions; however, the CARES Act would suspend the percentage limitations entirely. This simply means that any qualified contribution is allowed to the extent that the aggregate of such contributions does not exceed the taxpayer’s adjusted gross income. This type of provision allowing for an “unlimited” charitable contribution deduction has occurred in the past; however, this suspension is applicable only for cash contributions.
The CARES Act also increases the limitation on the corporate charitable contribution deduction from 10% of taxable income to 25% of taxable income. In addition, the limitation on contributions of food inventory is increased from 15% to 25%.
Caution: This explanation is general in nature and should not be used for specific planning. Contact a tax professional for your specific planning needs.
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