New Tax Incentives for Giving to Your Favorite Charity - Your Questions

May 1, 2020

Given the impact of COVID-19 on the economy, many of us are inclined to give to organizations that need help. Fortunately, the CARES Act includes favorable tax benefits for cash gifts made to qualifying charitable organizations this year? Like us, the government wants these establishments to thrive, and the temporary changes to the deductibility of our donations are a way to encourage us to donate.

Q: What are the changes?

A: If you typically use the standard deduction when calculating taxes, rather than itemize on Schedule A, you’re eligible for an above-the-line deduction for your gift of cash to charity this year, up to a maximum deduction of $300.

For taxpayers who itemize, cash gifts to charity will not be limited to 60% of adjusted gross income for the tax year 2020. Instead, this year you can deduct the amount of your gift up to 100% of AGI. These donations must be made by check or credit card, paid directly to the charity. If they aren’t, then the 60% (or 30% for gifts of appreciated securities held longer than one year) limitation will apply. Remember, any amount of your gift that is not deductible on Schedule A, due to the limitation, can be carried forward and used over the next five years.

Q: Do these temporary deduction rules apply to contributions to a donor-advised fund (DAF)?

A: No. Cash gifts to DAFs, private foundations and supporting organizations are still limited to 60% of AGI. These charitable entities allow deferment of the gift into future years. Your donation must help support a charity now, bettering their chance to survive this pandemic.

Q: Do these changes only apply to gifts made to charitable organizations that are associated with the COVID-19 crisis?

A: No. These incentives apply to donations made to any qualifying 501(c)(3) charitable organization this year.

Q: Can I still make a gift to charity from my IRA if I’m over age 70 ½?

A: Yes. The amount of the gift is still limited to $100,000 this year. Remember, a direct donation to charity from your IRA is not deductible on your tax return because you aren’t liable for paying taxes on the amount of the “distribution.” If you’re inclined to make a substantial gift to charities, you could take advantage of both strategies – direct contribution of cash, along with the QCD from your IRA.

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