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Increased Charitable Deduction Limits for Donations

Under the federal income tax laws, cash donations to a 501(c)(3) public charity are generally deductible by an individual donor who itemizes deductions in an amount up to 60% of his or her adjusted gross income. The same cash donation to a 501(c)(3) private foundation, however, is generally limited to a deduction of 30% of the individual’s adjusted gross income.

Under the CARES Act, and for the 2020 taxable year only, cash donations to 501(c)(3) public charities are not subject to the general 60% cap and are deductible up to 100% of an individual itemizer’s adjusted gross income.

Unfortunately, cash donations made to private foundations in 2020 remain at the same 30% statutory maximum. Cash donations to Donor-Advised Funds and Internal Revenue Code 509(a)(3) Supporting Organizations are also ineligible for the 2020 suspension of the deduction limitation.

Donations by corporations to 501(c)(3) public charities are similarly entitled to increased deductibility limitations under the CARES Act for the 2020 taxable year. While cash donations to these organizations are generally limited to 15% of a corporation’s taxable income, the CARES Act increases this cap to 25%. Additional increases are also available to corporations that donate food inventory.

An “Above-the-Line” Charitable Deduction for Non-Itemizers

The increased charitable income tax deductions for personal income tax returns aren’t meaningful for those who claim the standard deduction. For these individuals, donations to charity are driven not by the desire to secure an income tax deduction, but to do good works and support worthy causes. From an income tax perspective, their charitable intentions and donations go unrewarded.

Under the CARES Act, all individuals who file federal income tax returns for the 2020 taxable year and elect the standard deduction are eligible to claim an “above-the-line” deduction for contributions made to public charities.

This means that an individual who chooses the standard deduction when computing his or her taxable income can reduce their taxable income by as much as $300 for charitable donations before application of the standard deduction. This deduction is limited to donations to public charities and does not apply to donations made to 509(a)(3) Supporting Organizations or to Donor Advised Funds. Donations to any public charity qualify, not just those that offer relief relating to COVID-19.

The CARES Act offers some opportunities to non-profits responding to dire need during this time. Organizations are encouraged to communicate these changes to their donors and the public-at-large when seeking aid.