CARES Act and your Gift planning
A helpful summary provided to you by the Department of Development & Alumni Engagement with the assistance of CPA Mike Stoudt '87.
The CARES Act is an 800+ page piece of legislation that was signed into law on March 27th, 2020. The CARES Act provides relief from the pandemic to businesses, individuals and institutions in a multitude of ways. Nonprofits and their fundraising efforts are not immune to the pandemic and below are some highlights the Department of Development & Alumni Engagement at Moravian College wants to make known to our donors as they consider a gift in the 2020 calendar year.
The CARES Act includes numerous provisions that could benefit you financially. Consult your Professional Advisors about these provisions, and contact us if we can help you with any gift-planning opportunities.
Donors who use the Standard Deduction
The CARES Act created a new $300 above the line deduction for taxpayers filing with the Standard Deduction. It does not apply to supporting organizations or donor-advised funds and only applies to funds donated in the 2020 calendar year.
This change provides an incentive for the over 90% of taxpayers who make use of the standard deduction. Non-itemizers can now deduct up to $300 in charitable giving above and beyond their corresponding standard deduction. This means that you could add an additional $300 to your charity budget this year, recover a portion of it in tax savings, and help charities address extraordinary current needs.
Example: Suppose that you are over the age of 65 and your itemized deductions would total $12,000. You would claim the standard deduction of $13,700 rather than itemizing. If you give at least $300 in cash to qualifying charities this year, you can elect the standard deduction of $13,700 and also deduct $300 - for total deductions of $14,000.
Donors who Itemize Deductions
Previously, donors who itemize deductions were able to deduct charitable gifts of cash up to 60% of their annual adjusted gross income (AGI). The CARES Act has temporarily lifted this cap to 100% of their AGI for the calendar year 2020.
This change provides an incentive for some of our most generous donors to support us in our time of increased need.
Example: Suppose you had income of $200,000 in 2019, but from investments you made a cash gift of $400,000. Your previous deduction limit would have been $120,000 (60% of $200,000). In 2020, you can deduct $200,000.
Other items to note with this provision:
- If a gift given in 2020 exceeds 100% of a donor’s 2020 AGI, like in the example above, the donor can make use of the five-year carryover rule, allowing them to apply the unused portion of their gift in future years.
- With this portion of the CARES Act, deductions on gifts of property remain 30%.
- Like the $300 deduction for non-itemizers, the modification of the contribution limit does not apply in the case of gifts for donor-advised funds and supporting organizations. The gifts in most cases must be to a public charity.
Donors using Qualified Charitable Deductions (QCDs)
Under the SECURE Act that was enacted in December 2019, IRA owners and certain participants in qualified retirement plans are required to take distributions beginning at the age of 72. The mandatory beginning age had been 70½.
Required Minimum Distributions (RMDs) are suspended for 2020 due to the CARES Act. A reminder that Qualified Charitable Deductions (QCDs) can still be taken advantage of, up to an amount of $100,000 annually. Since this is a cash gift, any gift via this route will fall under the new 100% deduction of AGI for 2020.
Example: A donor over the age of 59½ with a large IRA balance not needed for living expenses wants to give more of that IRA now but do so without paying taxes. In 2020, the donor withdraws $500,000 from the IRA and then contributes it to charity. This adds $500,000 to adjusted gross income, but the donor can deduct the entire $500,000 since charitable gifts in 2020 are deductible to the full extent of adjusted gross income. The deduction offsets the taxable income, which is the equivalent of a tax-free charitable rollover.
Your situation might be quite different. Maybe you want to make a gift from your IRA in the future but not now because it has lost quite a bit of its value. Thus you elect to not make a withdrawal this year and let your IRA recover. That way, either next year or in the year you turn 72 years of age, you’re able to make charitable transfers that count towards your mandatory distribution requirements.
The CARES Act created new charitable contribution incentives for C Corps. Now, C Corps can deduct 25% of their taxable income for cash contributions as opposed to the 10% limit in years prior.
The Act also increases the percentage of taxable income corporations can claim when they contribute food inventory for the needy, from 15% to 25%.This may help replenish depleted food inventories at your local food bank or Mo’s Cupboard on our campus!