The CARES Act was passed in the spring in an effort to help Americans through the pandemic and ensuing economic turmoil. It also may provide a few additional tax benefits for donors to your organization. There has been a fair amount of confusion given the expedited rollout of the CARES Act this year. Our experience is that clarity on such changes in many instances comes too late in the tax year, resulting in donors and organizations being unable to maximize the potential benefits. This information is intended to help you understand how current tax law changes can help inform and produce more productive dialogue with donors.
- First, for donors who itemize deductions on their tax return, charitable contributions of cash are normally limited to 60% of the donor’s adjusted gross income (AGI). For the 2020 tax year, individuals can claim an itemized deduction of up to 100% of their AGI for charitable contributions made in cash directly to charities.
- Also, beginning in tax year 2020, an individual who does NOT itemize deductions can deduct up to $300 in charitable contributions made to nonprofit organizations as an “above-the-line” deduction, which reduces their adjusted gross income before any standard deductions are applied. This allows an individual to claim a deduction for a charitable contribution even if the individual does not itemize deductions.
- In addition, contributions from corporations are normally limited to 10% of taxable income, and for the 2020 tax year, the percentage has been increased to 25%.
In looking forward, the current tax platform outlined by Joe Biden includes several elements that also may better inform taxpayers and charities on steps they may want to consider in their gifting plans. Please note that much has to happen in both the election and the legislative process before any of these become part of the tax law.
- The top tax bracket could increase from 37% to 39.6%.
- Itemized deductions are capped to 28%, so if your tax bracket is above that, you may have limited deductions under these proposals (this could be a good year to accelerate charitable giving through establishing a Charitable Giving Account).
- Capital gains could be taxed at ordinary tax rates for those who earn more than $1 million under this proposal. This would make gifting of the appreciated stock/assets more important in the years ahead.
- Finally, assets may not get “step-up in basis” at death, making gifting of highly appreciated assets an even more important consideration.
The situation will become clearer as we get past election season, but we thought you should be aware of these possibilities. Please consult your tax advisor for specifics around your situation.