September 22, 2020

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a $2.2 trillion stimulus plan signed into law in March of this year. The sweeping legislation was meant to provide relief from the economic hardship of the pandemic, and has a number of tax incentives to support your favorite charities like Mercy Home. The CARES Act is a massive undertaking. Unprecedented in size and scope, the legislation is the largest economic stimulus package in U.S. history, amounting to 10% of total GDP.

There are FOUR KEY PROVISIONS in the CARES Act that may directly affect you and your charitable giving this year. They are:

Temporary Universal Charitable Deduction

You can now deduct your gifts to Mercy Home, even if you take the standard deduction on your federal tax return. The CARES Act allows for up to $300 per taxpayer ($600 for a married couple) in an above-the-line deduction for charitable gifts made in 2020 and 2021. This means that you can lower your income tax bill by giving to Mercy Home today, even if you take the standard deduction on your taxes.

Please note: this deduction is ONLY for gifts of cash made in 2020 and 2021 to public charities, and does not cover contributions to donor-advised funds or private foundations.

100% Charitable Deduction for Cash Gifts

Thanks to the CARES Act, you can now deduct cash gifts of up to 100% of your adjusted gross income (AGI), effectively eliminating your federal tax liability in 2020 and 2021.

If you itemize deductions on your taxes, there are new charitable deduction limits. The CARES Act increases the existing cap on cash gifts for those who itemize. In a typical year, individuals can only take a charitable deduction of 60% of their adjusted gross income (AGI), no matter how much they give. But between 2020-2021, there is no limit, making cash contributions fully deductible to 100% of AGI.

This means that if you are facing a heavy tax burden this year, a large cash gift to charity could significantly decrease (or even eliminate) your federal tax liability. Again, in an effort to encourage immediate giving, donations to donor-advised funds or foundations will not qualify for this tax break.

Incentives for Corporate Giving

The CARES Act increases the cap on how much corporations may deduct for charitable gifts–from 10% of taxable income to 25%. In addition, the limitation on deductions for food donations by corporations increases from 15% to 25% in both 2020 and 2021. If you own a business or are responsible for financial decisions at your place of work, this tax break is something to look into.

No Required Minimum Distributions in 2020 and 2021

Were you planning to take a required minimum distribution (RMD) from your retirement account in 2020 or 2021? The CARES Act waives all RMDs for individuals over the age of 70 ½ who own specified retirement accounts until next year. However, you can still choose to send a qualified charitable distribution (QCD) to Mercy Home or any other charity and potentially lower your AGI (thereby decreasing your tax liability).

While tax benefits are rarely the primary consideration when making a charitable gift, the advantages of the CARES Act may inform how—and how much—you can give at this time.

Finally, it should be noted that the CARES Act is just one in a series of stimulus packages passed into law in the early days of the pandemic. By the time you read this, there likely will be new laws on the books to provide further relief from this ongoing crisis. We will continue to provide guidance on how these new laws affect your charitable giving. And of course, if you have any questions, please reach out at any time.