How the CARES Act Enhances Charitable Giving Incentives for Donors

The CARES Act suspends the 60 percent adjusted gross income limitation for individuals’ charitable contributions for the year 2020.

In a typical year, individuals can only take a charitable deduction of up to 60 percent of their adjusted gross income, no matter how much they give. For 2020, there is no limit, making cash contributions fully deductible.

Itemizing donors, that either have large pledges outstanding or contemplating large gifts to a charitable organization should consider making those gifts in the 2020 Tax Year.

Many donors of charitable organizations have been limited in their ability to fully deduct their charitable contributions in the past. The CARES Act removes the 60% cap on charitable deductions of their adjusted gross income. This expansion of the charitable deduction, for now, ends on December 31, 2020.

Development staff need to be aware of this tax provision when they are in conversation with their largest donor prospects prior to the end of 2020.

For example: A donor has been contemplating a large gift to a ministry. The donor’s accountant has been advising the donor to remember the cap on charitable deduction of 60% of adjusted gross income. The CARES Act allows the donor to make the gift to a ministry, in 2020, and fully deduct the contribution.

Universal Charitable Deduction

Most taxpayers take advantage of the standard deduction when they are filing their Federal Tax Returns. The CARES Act provides an additional charitable deduction on top of the standard deduction for these taxpayers.

Taxpayers who do not itemize their deductions can take a one-time deduction of up to $300 for gifts made to charitable organizations. The deduction is ONLY for gifts of cash made in calendar year 2020.

This provision can provide incentive for potential donors to begin or increase charitable contributions.

For Example: A congregation, in reviewing their annual giving records, is concerned about the number of members that are not contributing financially. In the congregation’s appeal for 2020, the CARES Act provision that allows for an additional $300 deduction above the standard deduction should be emphasized to encourage increased giving.

I believe these two charitable deduction provisions, in the CARES Act, were included to encourage additional giving to congregations, ministries and non-profits that are so negatively impacted by the virus.