During this time of uncertainty, it is important for nonprofit organizations to be aware of new legislation that may impact them. This March, Congress passed the CARES Act in order to address the economic fallout that has been caused by the COVID-19 pandemic. The legislation includes a variety of funding opportunities for nonprofit organizations, but it also changes the structure of tax benefits in order to further incentivize individuals and corporations to provide financial support to charitable organizations during this time.
Understanding how these changes can impact your organization could be very beneficial as the world struggles with the coronavirus pandemic. We have outlined the changes that were made, and how they will impact charitable giving.
For individuals taking the standard deduction, they are now able to reduce their taxable income in 2020 by up to $300.00 for cash contributions to charities. Recipients can do this by using what is known as an “above the line adjustment,” a calculation of the total before the adjusted gross income.
Typically, individuals itemizing their deductions are limited with respect to the amount of deduction available for charitable contributions made during the year. These limits are determined by a percentage of the individual’s adjusted gross income, but the CARES Act has changed these limitations. For individuals choosing to itemize their deductions, the CARES Act now allows for cash contributions to qualified charities to be deducted at up to 100% of their adjusted gross income for 2020. Ordinarily, the income tax charitable deduction for cash donations is limited to 60% of a taxpayer’s income. This 100% limit allows donors to reduce their 2020 federal income tax to zero.
The CARES Act also affects distributions from retirement accounts. For the year 2020, regardless of the age of the owner, there will not be a mandatory distribution from the retirement account, which allows the account(s) to recover. The minimum age for making a transfer that is tax free is still at 70.5, and the annual limit will remain at $100,000. However, because these cash gifts are deductible in 2020 to the extent of adjusted gross income, an individual would be able to withdraw money from the retirement account, then contribute a larger amount and still offset the taxable withdrawal.
At Cause Inspired, we understand that this time is challenging for nonprofit organizations. We work hard to provide helpful resources and effective digital marketing solutions.