Sept 2020 News Tax Breaks

The CARES Act includes provisions to support nonprofit organizations in this age of economic hardship, allowing donors to enjoy new added tax benefits for aligning their dollars with their values.

Due to the tax code changes for the year 2020, there is now no limit to the deductions you can take for charitable contributions if you itemize your contributions. Previously, you could only deduct up to a maximum of 60% of your adjusted gross income (AGI) via charitable contributions. Under the new guidelines, 100% of your donation would now be tax deductible, meaning if your taxable income is $500,000 in 2020, and you give away $500,000 to qualified organizations in 2020, you won’t have to pay taxes on your income.

You can also donate more than 100% of your AGI, but the amount over 100% would be carried forward (subject to the 60% of AGI limit) in the subsequent five tax years.

This change applies only to cash gifts made to charitable organizations qualified by the IRS, it does not apply to contributions to private foundations or to donor advised funds. The goal is to directly deploy funds to nonprofits on the ground.

Under the CARES Act, taxpayers can now take a deduction for up to $300 in charitable contributions if they don’t itemize on their 2020 tax form. This is a flip from the previous rule that required itemization for a tax break. To constitute a qualified contribution, the contribution must be made during the 2020 calendar year. In addition, a taxpayer must elect to receive the benefit of the increased charitable deduction for any qualified contributions.

In addition to cash donations, the CARES Act now incentivizes food donations in a major way. The tax deduction available for food inventory has been raised from 15% to 25% for the 2020 taxable year, in the face of heightened visibility and exacerbation of food insecurity during this crisis. Taxpayers who donate food to their local food pantry can claim the value of that food on their taxes. On a larger scale, if you’re a restaurant with an income of $100,000, and you donate $25,000 worth of food inventory, you can reduce your business’s taxable income to $75,000. And if you’re able to donate more than 25% of your AGI — let’s say $50,000 — you’ll still only be able to write off $25,000 this year, and the additional $25,000 will carry over to the next year (where the tax deduction limit will likely return to 15% of AGI).

For corporations looking to extend their charitable giving, the CARES Act raises the annual cash gift limit from 10% to 25% of corporate taxable income. Like with individual giving, the tax benefit does not apply to contributions toward Donor Advised Funds. The goal is to directly deploy funds to nonprofits on the ground who are in need of rapid support.

Source: Forbes article by Morgan Simon, Senior Contributor

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This article does not constitute investment, tax, or legal advice, and Florida Nonprofits is not responsible for any actions taken based on the information provided herein.

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