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CARES Act Creates New Incentives for Year End Charitable Contributions

November 03, 2020

If you’re looking to make a year-end charitable contribution, you’ll want to read up on new opportunities to save tax created by the CARES Act.

As the end of the calendar year approaches annual appeals, year-end campaigns and tax planning begins. Wondering how you can maximize your contributions to Charitable Organizations while being tax-conscious as well? This year there are extra incentives for donors to give a little more.

Why should you give at year-end?

Giving to charity this time of year is a smart move – not only will you be benefiting those less fortunate around the holidays, but your donations can provide you with valuable tax deductions. Check out our blog, Year End Giving Guidelines. Opportunities to reduce taxes for 2020 include giving long term appreciated securities instead of cash, establishing a donor advised fund (DAF) and bunching your donations.

How does the CARES Act change this?

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) that was enacted on March 27, 2020 included a provision to encourage charitable contributions in 2020 for any charitable purpose, not just contributions to charities related to the COVID-19 crisis.

Specifically, the CARES Act increases the maximum 60% of Adjustable Gross Income (AGI) charitable contribution limit to 100% of AGI limit for 2020. This means that a donor can get a charitable contribution deduction for the full amount of your Adjusted Gross Income. Charitable contributions in excess of this amount can be carried forward for five years subject to the 60% of AGI limit in those years.

The higher 100% of AGI limit applies to cash contributions made directly to charitable organizations, this excludes donor advised funds, supporting organizations and private foundations. The 100% of AGI provision is limited to charitable contributions in 2020 to encourage an immediate impact in the fight against COVID-19. The provision is not available for charitable contributions to donor advised funds, private foundations and supporting organizations as Congress wants this additional allowable charitable contribution to be spent right away for charitable purposes, rather than be accumulated for charitable purposes in future year.

Very few people have the ability and desire to give more than half of their income to charity—but there are some. The increase in the AGI limits will hopefully encourage those who can to give a little more to the charitable organizations in our community that are serving the people that have been hardest hit by COVID-19.

If you have any questions or need some assistance with your tax planning, contact our team.

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