When the pandemic began, the future was filled with uncertainty, but everyone at United Rehabilitation Services (URS) was determined to find a way to continue to provide crucial services that enhance the lives of children and adults with disabilities.
On March 27, 2020, the Coronavirus Aid, Relief and Security (CARES) Act was signed into law, creating a two trillion-dollar economic stimulus package to provide relief for nonprofits. This funding allowed us to keep our doors open and to maintain a sense of normalcy for the individuals and families we serve.
The bill also included, for the first time, provisions for new tax incentives for persons or companies who give to public charities in response to a national emergency. A gift to URS will help us to inspire and support hundreds of people every day. There is a light at the end of the tunnel, and we can get there together! Here’s how the new tax incentives affect charitable giving:
New Deduction for Individuals and Married Couples Who Do Not Itemize
In 2017 Congress passed a tax law which doubled the standard deduction, eliminating the need, for most, to itemize charitable contributions. The CARES Act offers a new deduction of up to $300 per person, or $600 per married couple who take the standard deduction when filing their taxes (those who do not itemize). The bill provides for an “above the line” deduction and is calculated by subtracting the amount you’ve donated from your gross income, reducing the amount you will owe in taxes. Any cash donations made to a qualified charity like United Rehabilitation Services since January 1, 2020 can be applied toward the $300 cap. This cannot be a donor-advised fund.
New Charitable Deduction Limits for Those That Itemize
Individuals and companies that itemize are now able to deduct greater amounts of contributions to a public charity. Individuals can deduct cash contributions, up to 100% of their adjusted gross income on their itemized 2020 tax returns, an increase of 40%. Corporations can deduct 25% of taxable income. Again, the donation must be made directly to a qualified charity. If you choose to donate to a private foundation (donor-advised fund), previous deduction guidelines will apply. Donations of appreciated stock, property or other assets do not qualify for changes in the 2020 CARES Act.
Required Minimum Distributions Waived in 2020
The CARES Act suspended the start of Required Minimum Distributions (RMD) including distributions from defined benefit pension plans and 457 plans for persons 70.5 years and above until 2021. RMD’s are a way for donors to make a Qualified Charitable Donation (QCD) to an organization through their IRA, reducing their taxable income. Despite the ability to waive the minimum distribution requirement, those who choose to make a QCD of up to $100,000 this year will still reduce their taxable IRA balance.
This information is not intended as legal or tax advice. Please consult an attorney or tax advisor for more information. Figures cited in any examples are for illustrative purposes only. References to tax rates include federal taxes only and are subject to change. State law may further impact your individual results.