2020 has been a difficult year for everyone as we all have
navigated the various impacts of the COVID-19 pandemic. Knowing the desire of the American
people to reach out and help others in time of need, lawmakers included several significant
changes in the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed
into law on March 27, 2020 to encourage charitable giving.
Under the CARES Act, beginning in 2020, individuals who do not itemize deductions may deduct up to $300 in charitable cash contributions (the limit applies regardless of the filing status). This charitable deduction is an above-the-line deduction and is deducted from the taxpayer’s income prior to the calculation of adjusted gross income. This deduction is in addition to the standard deduction.
Another positive change for individual taxpayers is this: the limitation for individuals who
are still able to itemize their deductions has been significantly relaxed. Prior to the CARES
Act, deductions for cash contributions to qualified charitable organizations was limited to 60
percent of the individual’s adjusted gross income. Under the CARES Act, the deduction for
cash contributions to a qualified public charity in 2020 has been increased to 100 percent of
the individual’s adjusted gross income. This is a substantial change as it could theoretically
lead to zero taxable income for a donor. If the contribution amount exceeds 100 percent of the
individual’s adjusted gross income, then the excess can be carried forward and utilized over
the next five years.
It is important to note that both of these provisions, the new universal charitable contribution
and the relaxed limitation on itemized deductions, apply to cash contributions to qualified
public charities only. Also, these special rules do not apply to contributions made to donor-advised funds
or private foundations.