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IRS changes regarding charitable contributions

 

By James E. Dunning, Jr., CPA ('81)

 

 

 

2020 has been the most unusual year any of us may recall and it has affected us as individuals, businesses small to large and non-profits whose resources are being stretched as well.  The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed many provisions and two of them are designed to assist charitable (501c3) organizations like your place of worship and your favorite college.

 

One change is the CARES act allows for deduction of donations up to $300 for everyone regardless of other filing rules.  This helps as many now use the "standard deduction" because of a prior tax change passed in 2017. Whether you donate $10, $100 or more you, will be able to reduce your taxable income up to $300 for your generosity. This change is “permanent” (or as permanent as things can be when it comes to tax legislation).  If you missed having this tax deduction, it is back although limited.

 

The other change, which is effective for 2020 only, is the elimination of caps related to donations.  The Tax Cuts and Jobs Act (TCJA) passed in 2017 raised the limit to 60 percent of your income.  The CARES act has raised that limit to 100 percent in 2020 for cash donations.  Donor Advised Funds and non-cash donations are not included in this provision. It is possible in 2020 to donate your entire income and reduce your taxable income to zero.  Corporations may deduct up to 25 percent of their taxable income and there are increased limits on those donating food inventory. Details may be found here: https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions

 

Many charities felt a large impact due to the tax change from 2017. Individuals who donated for tax purposes felt there was no benefit so they stopped giving; others were unsure about all of those changes and opted to wait a year to determine the impacts.  Tax law does not change the ongoing purpose of support and assistance behind charities; they still need our help.  If you donate up to $300, you get that tax deduction back.  For 2020, you can make an even bigger impact and donate 100 percent of your income and eliminate your tax.

 

As I have previously done, I encourage you to remember your alma mater when making your donations. As always,  you should consult with your tax advisor to see how this impacts your specific, unique tax situation. 

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