The CARES Act: Charitable Contribution Provisions

Posted In: COVID-19 Market Update

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 is an estimated $2 trillion package. In this series, we will discuss four of the most notable provisions for individuals and families.

 

New $300 above-the-line deduction for “Qualified Charitable Contributions”

 

The CARES Act includes a new above-the-line deduction for Qualified Charitable Contributions made to eligible charities.

 

As with many things, when it comes to taxes, there is both good news and bad news. The bad news is that the deduction, which is effective for tax years beginning in 2020, is limited to $300. Even for a taxpayer in the highest tax bracket of 37%, that still ‘only’ amounts to an actual tax-bill-savings of $111. Every little bit helps, but it’s hardly going to be a windfall for anyone, as a taxpayer in the 12% bracket will only get $36 of tax savings.

 

The good news, though, is that although the impact on an individual basis may not amount to much, a more substantial number of people will be able to take advantage of this benefit. That’s because in order to claim the deduction, a taxpayer cannot itemize deductions on their Federal return. But thanks to the recent near-doubling of the standard deduction only about 10% of taxpayers today actually itemize deductions on their Federal return… which means about 90% of taxpayers can potentially benefit from this new tax break in at least some way!

 

Notably, Qualified Charitable Contributions must be made in cash. And they cannot be used to fund either donor-advised funds (DAFs) or 509(a)(3) “supporting organizations.”

 

AGI limit for cash charitable contributions temporarily repealed

 

The CARES Act temporarily increases the AGI (Adjusted Gross Income) limit on cash contributions made to charities from a maximum of 60% of AGI (previously increased from 50% by the recent tax law changes), to a maximum of 100% of AGI for “qualified contributions.” As such, an individual can completely wipe out their 2020 tax liability with charitable contributions. If total charitable contributions exceed the 2020 100%-of-AGI limit (once a taxpayer has brought their 2020 income tax liability to $0), the excess may be carried forward as a charitable contribution for up to 5 years.

 

Like Qualified Charitable Contributions, this provision expressly prohibits such contributions from funding either donor-advised funds (DAFs) or 509(a)(3) “supporting organizations.”

 

 

Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purposes of avoiding penalties that may be imposed by law. Each tax payer should seek tax, legal or accounting advice from a tax professional based on his/her individual circumstances.
This material is for informational purposes only. Neither APFS nor its Representatives provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions. Information has been obtained from sources believed to be reliable and are subject to change without notification. The information presented is provided for informational purposes only and not to be construed as a recommendation or solicitation. Investors must make their own determination as to the appropriateness of an investment or strategy based on their specific investment objectives, financial status and risk tolerance. Past performance is not an indication of future results. Investments involve risk and the possible loss of principal.

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