Among the changes made to the tax code in response to the coronavirus pandemic (COVID-19) are two provisions under the CARES Act (Pub. L. No. 116-136) increasing the limitations on charitable deductions made in cash. Here’s what you need to know.
For 2020, you will be allowed a deduction for up to $300 of your charitable contributions even if you do not itemize. Contributions made to private non-operating foundations, supporting organizations, and donor-advised funds do not qualify for this provision.
In past years, your deduction for charitable contributions made in cash has been limited to 50% or 60% of your adjusted gross income. For 2020, if you elect to do so, you will be able to deduct charitable contributions up to 100% of your adjusted gross income. Contributions made to private non-operating foundations, supporting organizations, and donor-advised funds do not qualify for this enhanced limitation, although they remain deductible up to the existing limit.
Qualifying cash contributions allocated to you by partnerships and subchapter S corporations will be eligible for the election. Those entities will need to provide you the amount of qualifying cash contributions on your Form 2020 K-1.
Contributions of property (i.e., securities or personal property) do not qualify for this enhanced deduction limit, although they continue to be deductible subject to the existing limits.
Although the exact mechanics of the election are not yet available, typically such elections are made when your 2020 return is filed. However, if you think you will be eligible for this election, and wish to take advantage of it, we can take it into account when preparing your 2020 estimated taxes.
Charitable Contribution Limits for C Corporations
Among the changes made to the tax code in response to the coronavirus pandemic (COVID-19) are two provisions under the CARES Act (Pub. L. No. 116-136) increasing the limitations on charitable deductions.
In past years, your deduction for charitable contributions made in cash have been limited to 10% of your taxable income. For contributions made during 2020, if you elect to do so, you will be able to deduct charitable contributions up to 25% of your taxable income. Contributions made to private non-operating foundations, supporting organizations, and donor-advised funds do not qualify for this enhanced limitation, although they remain deductible up to the usual 10% limit.
For fiscal year taxpayers, contributions made during calendar year 2020 are eligible for this election, whether included in the 2019 tax return or the 2020 tax returns.
Qualifying cash contributions allocated to you by partnerships will be eligible for the election. Contributions of property (i.e., securities or personal property) do not qualify for this enhanced deduction limit, although they continue to be deductible subject to the existing limits.
Although the exact mechanics of the election are not yet available, typically such elections are made when your tax return is filed. However, if you think you will be eligible for this election and wish to take advantage of it, we can take it into account when preparing your estimated taxes.
In addition to the increased limitation for cash contributions, if you donate food inventory, the deduction limitation for 2020 is 25% of taxable income rather than 15% of taxable income. No election is required for this provision.
Charitable Contribution Limits for Partnerships and S Corporations
Among the changes made to the tax code in response to the COVID-19 pandemic are provisions increasing the limitations on charitable deductions made in cash. No elections are required on your part, but you will need to provide sufficient information to your owners so that they can potentially make an election on their returns. Certain charitable contributions made in cash during calendar year 2020 are potentially subject to an increased limitation on deductions (100% vs. 50% of adjusted gross income for individuals, 25% vs. 10% for corporations).
However, not all charitable cash contributions qualify. Contributions made to private non-operating foundations, supporting organizations, and donor-advised funds do not qualify for this enhanced limitation, although they remain deductible up to the previous limits. Therefore, you should retain sufficient records so that when you prepare your 2020 returns you can provide the owners with the amount of qualified contributions separately from non-qualified contributions.
Pine & Company Can Help
Please let us know if you have questions on how these changes may apply to you. We at Pine & Company CPAs are committed to supporting the success of small businesses throughout North Texas. If you have questions about a particular section of this legislation, we would like to assist you in any way we can.
