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The Reality of CARES Act Tax Deductions

causemic cares act tax law

As a result of the CARES Act, newly minted tax benefits have incentivized charitable giving for nonprofits in 2020 and beyond. This blog post will serve as a brief overview of these new charitable deductions, with a few recommendations around how to benefit in response. 

Individuals can now take a $300 above-the-line tax deduction (or $600 for a married couple) for charitable contributions, whether they choose to itemize their deductions or not. This adjustment essentially reduces a donor’s adjusted gross income (AGI), which in turn reduces total taxable income. This is in addition to the standard deduction, where a donation to a donor-advised fund (DAF) does not qualify for this new deduction. 

Now individuals and corporations that itemize deductions are eligible for a deduction up to 100% of AGI for 2020, compared to the previous limit of 60%. For corporations, the 10% limit on deductions for charitable contributions has been increased to 25% of taxable income. If the contribution exceeds the limitation, the individual can still carry forward and utilize the excess amount over the five years that follow.

The passage of the Tax Cuts and Jobs Act in 2017 previously reduced the number of individuals who itemized deductions, because the standard deduction was raised to $12,400 for single taxpayers and $24,800 for married couples. This made the traditional approach of itemizing charitable contributions no longer as beneficial to the donor, resulting in a decline in itemized deductions. Read our full blog post on how the Tax Cuts and Jobs Act impacted giving here.

 

How your organization can respond

 

The most important thing nonprofits can do given this shift is to inform your donors so they understand exactly what is deductible in 2020. See how Make-A-Wish created a dedicated “stimulus” page on their website. 

All in all, these deductions will largely benefit low and middle-income households, but may not significantly impact your nonprofit organization considering the limitations. Overall, very few taxpayers give even one-third of their AGI to charity, so the benefits of itemizing deductions falls in the hands of those capable of giving more. This is an opportunity to cultivate relationships with your major donors, who may fall into this category and have a higher capacity to give right now.

The new law also allows people aged 72 and older to defer Required Minimum Distributions (RMDs) from their retirement accounts for 2020, which may reduce their charitable giving as a result. 

The reality of these deductions is that they will not drastically change giving in the long-term, but may present a short-term benefit to corporations and wealthy individuals looking to support organizations during the pandemic. 

 


Did you know approximately 83 percent of users who land on a nonprofit’s donation page never make a gift? Meaning they’ve probably clicked their way across a donate button, landed on a page designed to complete their transaction, and then abandoned ship. 

Curious to know why?

Download our free donation page assessment, and get concrete tips on how to develop an optimized, friction-free experience for those looking to invest their hard-earned dollars into your mission.