In 2017 Congress passed the Tax Cuts and Jobs Act which dramatically changed the federal income tax returns for millions of taxpayers.
One major change was the increase in the standard deduction. For the 2020 tax return, the standard deduction will be $12,400 for single taxpayers and $24,800 for married couples filing a joint return. Due to this change, many taxpayers chose to utilize the standard deduction instead of itemizing when filing their tax return.
For those taxpayers who utilized the standard deduction, one of the benefits they could no longer take advantage of was the charitable deduction for gifts to nonprofit organizations. While most donors’ primary reason for making charitable gifts is their support for the organization’s mission, and not the tax deduction, nevertheless overall giving to charitable organizations declined after the passage of the Tax Cuts and Jobs Act.
As part of the federal government’s response to the Coronavirus, Congress passed the Cares Act to encourage donors to make charitable gifts to organizations like LSSND, whose programs are likely to be serving many North Dakotans who have been most affected by the virus and economic crisis. Many of our clients have lost their job or had their hours cut. They’re having a hard time putting food on the table, not to mention having money to pay their bills and mortgage.
Changes regarding charitable gifts from the Cares Act are only for the 2020 tax year. Time will tell if they are extended in future years. Certain aspects of the Cares Act regarding the effects on charitable contributions will undoubtedly be explained in greater detail by the Internal Revenue Service before the end of the year. Donors are encouraged to seek advice from their legal, financial and tax advisers.
Highlights of the CARES Act that may affect LSSND Donors and Friends
Above-the-line Charitable Deduction
For those taxpayers who take the standard deduction on their 2020 tax return, they may now take a charitable deduction of up to $300. This deduction is above the allotted standard deduction amount for their return. The gift must be in the form of cash, and cannot be in the form of stocks, clothes, vehicles or other types of gift-in-kind. To qualify, the cash gifts must be given to a public charity, like LSSND, and cannot be made to a private foundation or donor-advised funds.
Increased Limitations for Itemization
Prior to the passage of the 2017 Tax Cuts and Jobs Act, donors who itemized their tax returns were only allowed to deduct charitable gifts up to 50% of their adjusted gross income (AGI). Any additional charitable gifts above that level could be carried over and deducted in the following five years. The Tax Cuts and Jobs Act increased the percentage of the AGI up to 60% with the same carry-over period. For the 2020 tax year the Cares Act allows donors to deduct their charitable gifts up to 100% of their adjusted gross income, with any additional gifts being carried over in the next five years.
Increased Limitations for Corporations
Prior to the passage of the Cares Act, corporate gifts to charities were limited to 10% of the company’s taxable income. The Cares Act now allows corporations to deduct up to 25% of their taxable income. In addition to cash contributions the Act also allows corporations to make contributions of food up to 25% of their taxable income.
Consult a tax professional for more details information about charitable giving.
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