CARES Act provides incentives for charitable contributions by increasing the charitable deduction

Overview:

The CARES act, passed on March 27, 2020, allows individuals and corporations to deduct greater amounts of charitable contributions.

In Detail:

Election to not itemize deductions allows for $300 deduction under §2204

  • For those individuals who elect not to itemize their deductions and therefore would not otherwise be allowed to deduct charitable contributions, § 2204 allows an above-the-line deduction. The deduction is limited to $300 for cash contributions made to charitable organizations. This deduction is not limited to 2020.

Election to increase certain charitable limitations for individuals and businesses under §2005

Individuals

  • Individuals may deduct cash contributions of up to 100% of their “contribution base” which is their Adjusted Gross Income excluding Net Operating Losses. However, any non-cash contributions are still limited to 50% of the contribution base and would first reduce the contribution base before applying cash contributions. Any excess contributions may be carried over to the following years but the increased limitation is only for 2020.

C Corporations

  • Cash and food contributions have been increased to 25% of a C Corporation’s taxable income. Non-cash and non-food contributions would still be subject to the lower 10% limitation and would first reduce the limitation before applying the cash and food contributions. Any excess contributions may be carried over to succeeding years. The increased limitation for cash contributions is for 2020 only but the food contribution limitation remains in effect after 2020.

Other Entities

  • Non-C Corporations also received an increase in allowable food contributions. The limitation is now 25% of the aggregate net income from all trades or businesses from which such contributions were made for such year. This increase remains in effect after 2020.