On Friday, March 27, the U.S. Congress passed, and the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion economic stimulus package legislated to provide immediate relief for families, businesses, and nonprofits.
High Level Information
New Deduction Available: Up to $300 in annual charitable contributions. This is available only to people who take the standard deduction (for taxpayers who do not itemize their deductions). It is an “above the line” adjustment to income that will reduce a donor’s adjusted gross income (AGI), and thereby reduce taxable income. A donation to a donor advised fund (DAF) does not qualify for this new deduction.
New Charitable Deduction Limits: As part of the bill, individuals and corporations that itemize can deduct much greater amounts of their contributions. Individuals can elect to deduct donations up to 100% of their 2020 AGI (up from 60% previously). Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%. The new deduction is for gifts that go to a public charity, such as MADE IN THE STREETS.
Required Minimum Distributions Waived in 2020 for Most Donors: Required minimum distributions (RMD) that would have had to start in 2020 do not have to start until 2021, including distributions from defined benefit pension plans and 457 plans. This change could de-incentive someone from making a qualified charitable distribution (QCD) from their IRA in 2020. However, making a QCD this year to MITS is a great way for itemizers and non-itemizers alike to direct up to $100,000 from their IRA to MITS in a tax efficient manner.
Details About the CARES Act
The inclusion of an expanded charitable giving incentive is a critical acknowledgement by Congress that the work of nonprofits like MADE IN THE STREETS is essential and important. Indeed, now more than ever street children in Kenya (and all over the World) are facing food shortages; a severe lack of medical attention; and continued fears about COVID-19. They need your love and care more than ever. It is also the first time in history that Congress has passed this type of giving incentive in response to a disaster or national emergency.
Here’s How it Works
New Deduction Available: The bill makes a new deduction available for up to $300 in annual charitable contributions. This is particularly beneficial to people who take the standard deduction when filing their taxes (in other words for taxpayers who do not itemize their deductions). It is calculated by subtracting the amount of the donation from your gross income. It is an “above the line” adjustment to income that will reduce your AGI, and thereby reduce taxable income.
To qualify, you would have to give a donation to a qualified charity, like MITS, before December 31. If you have already made your donation in 2020, that contribution counts toward the $300 cap. A donation to a donor-advised fund (DAF) does not qualify for this new deduction.
New Charitable Deduction Limits: Also included in the bill, individuals and corporations that itemize can deduct much greater amounts of their contributions.
Individuals can elect to deduct cash contributions, up to 100% of their 2020 adjusted gross income, on itemized 2020 tax returns. This is up from the previous limit of 60%.
Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%.
The new deduction is only for cash gifts that go to a public charity. If you give cash to, say, your private foundation, the old deduction rules apply. And while the organizations that manage DAF’s are public charities, you do not get the higher deduction for donating cash to your DAF. These new limits do not apply to gifts of appreciated stock. You can safely and easily make a cash donation to MADE IN THE STREETS through the MITS online donation portal.
If your assets are substantial enough that you can give more than your income this year, you won’t lose the deduction for the excess amount. You can use it next year, as has always been the case.
Required minimum distributions waived in 2020 for most donors: RMD for individuals over age 70½ are suspended until 2021. This includes distributions from defined benefit pension plans and 457 plans. The RMD is an attractive way for donors to make a significant charitable gift directly from their IRA to a charity through a qualified charitable distribution (QCD) while avoiding taxable income. Though not required in 2020, the tax benefit of the QCD still remains. All taxpayers, itemizers and non-itemizers alike, can still direct gifts from their IRA to charities in a tax efficient manner.
For more information or to discuss the great tax deductions available to donors in 2020, please contact MITS Executive Director, Brad Voss, at email@example.com.
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