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Effect of CARES Act Stimulus on Charitable Giving

Effect of CARES Act Stimulus on Charitable Giving

The COVID 19 relief package passed in March 2020 includes provisions valued at $2.3 million to cushion the pandemic's effect. It is called CARES Act and comes with a package for growing businesses, hospitals, taxpayers, and others. There is an aspect of the act that comes with tax advantages for people involved in charitable giving.

Since nonprofits need funding during this period, the CARES act was enacted to make people develop an interest in charitable giving. Individuals in the high-income bracket that seize the 2020 temporary change opportunity can have a chance to derive benefits when they leave gifts or contributions to a firm they care about. 


Charitable Giving: Tax Implication 

With this new legislation, there are tax deductions on two forms of charitable gifts. 

First, one can claim up to a $300 gift to a qualified charity as a deduction above the line. After the 2018 TCJA, the standard deduction increased, which discouraged many taxpayers from making charitable donations.

Since the new $300 deduction is above the line, there is a provision for taxpayers to take the deduction without itemizing. A donation of up to $300, taking the standard deduction above the line, and taking the standard deduction is possible. 

A taxpayer who will go through the itemizing route does not have the deduction limit for cash donated to public charities (public) since the CARES Act suspends it. Over the years, cash contribution deductions had a limit of 50% of an individual's AGI. This value was increased by the 2018 TCJA, which permitted taxpayers to deduct contributions to charity. 

With the CARES Act, one can deduct as much as 100% of the AGI for some contributions that qualify. With this, the taxpayer can altogether cancel their AGI and overall tax liability using a charitable contribution. 


Qualification for Charitable Giving Tax Changes 

For high-earning individuals with charitable giving as part of the wealth plans they have, they can accomplish the goal with the CARES Act. People that consistently support 501(c)3 firms and they are financially buoyant to make an impactful donation, such a person can fulfill their desire with the CARES Act and deduct as much as 100% of the AGI.

A lot of business owners and professionals' income will come down due to the pandemic, which will reduce their motivation to give. However, considering a Roth IRA conversion, some advantages come from joining a charitable contribution with a conversion.

There will be a tax on income from your traditional IRA contribution if you convert a traditional IRA to Roth IRA. Suppose you, however, complete the conversion in 2020, and you donated an impressive amount to a charity. In that case, there is a provision to reduce some or the entire tax liability and benefit such charity. 

In taking advantage of the CARES Act changes, there must be cash donations for the charitable foundation, not stock. However, individuals who have recently lost money might sell some of their stock for a loss and give the proceeds to the charity. This leads to a tax write-off on the loss and the charitable gift. 


Charitable Giving for the entire Family 

There are many ways one can take advantage of the CARES Act changes besides a huge legacy gift. Even though one might not get many benefits from the $300, it provides a golden opportunity to let your kids donate to a cause they care about.


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