What to know about the CARES Act: A donor's guide
We know that top-of-mind for all of us are concerns about your and your loved ones health and financial wellbeing. Nevertheless, we have heard from alumni and friends inquiring as to how they can help.
On March 27, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was passed into law. CARES is aimed at providing stimulus to the economy through relief to individuals, businesses, and provides incentives to encourage philanthropic giving specifically in 2020.
While most of us have heard about the individual stimulus checks, there are many other benefits we should be aware.
The CARES Act also makes changes to charitable deductions and charitable contribution limits. Based on the current interpretation of the Act, we understand these changes to only apply to 2020.
New Deduction for Cash Contributions up to $300 in 2020
Section 2204 of the CARES Act, encourages donors who do not itemize their deductions, but rather use the new standard deduction, to also benefit by making a cash gift to a charitable organization. This is an “above-the-line” adjustment to income reducing taxable income. This adjustment is available for cash gifts and is limited to $300 per taxpayer ($600 for a married couple).
New Deduction Limits Increase for Cash Gifts in 2020
Section 2205 of the CARES Act allows individual taxpayers who itemize their deductions to suspend the normal limit on deductions for contributions. This provision suspends the limit ordinarily set at 50-60% of adjusted gross income (AGI) and increases it up to 100%. You cannot deduct more than 100% of your AGI but you won’t lose the deduction for the excess amount - you can use it next year, as has always been the case. This provision is very favorable to donors who have been considering a generous cash contribution since the deductibility is not curbed due by percentage limitations. This increase only applies to gifts to public charities, not to private family foundations or donor advised funds.
This section also increases the taxable income limit that applies to cash contributions made by corporations to charitable organizations from 10% to 25% for 2020. Qualified cash contributions in excess of the 25% limit can be carried forward for up to five years under the usual limits. This provision also increases the limitation on deductions for contributions of food inventory from 15% to 25%. In the case of charitable contributions by partnerships or S corporations, each partner or shareholder must separately elect to use the modified percentage limitations.
Required Minimum Distributions Suspended
Section 2203 of the CARES Act temporarily suspends the requirements for required minimum distributions (RMD) from IRAs for the 2020 tax year. Some of you are likely relieved you do not need to draw from a retirement account at this time. Previously, the SECURE Act required RMD for those 72 or older. If you are 70½ or older, you can still make a gift from your IRA by transferring up to $100,000 and exclude that amount from taxable income (called a Qualified Charitable Distribution). Furthermore, since the gift does not count as income, it can reduce your annual income level, which may lower your Medicare premiums and decrease the amount of Social Security that is subject to tax. You benefit even if you do not itemize your deductions. You can also name a charitable organization, such as the university, as a beneficiary for the future.
If you were considering a meaningful gift in 2021, you may want to talk with your tax adviser if making your gift in 2020 will put you in a better position.
Limitations to the Benefits of CARES
It is important to note though you might reap other tax benefits by donating appreciated securities/stock, the CARES Act only applies to gifts of cash. Contributions to a supporting organization or to a sponsoring organization for the establishment of a new donor advised fund or to be added to an existing donor advised fund do not qualify for any of the above benefits. Charitable contributions carried over from a prior tax year (before 2020) are excluded from this temporary relief and are subject to previous limitations in the tax code.
How You Can Help
VCU’s College of Humanities and Sciences has not faced a challenge like COVID-19 before, but with our commitment to service we are quick to respond.
The generosity of our alumni and friends has never been more important. Your support will help address student needs and pressing necessities. We are grateful for your continued kindness and support during this difficult time.
You can make a secure online gift here, or mail your check made out to the “VCU Foundation” with “College of Humanities and Sciences” written in the memo line to:
VCU College of Humanities and Sciences
826 W Franklin St.
Richmond, VA 23284-2019
This information is not intended as legal or tax advice. Please consult your attorney or tax adviser.
- What the CARES Act means for higher education advancement leaders
- CARES Act includes charitable giving incentives
- Federal CARES Act for nonprofits
- Specifics of CARES Act and implications for businesses and individuals
- Analysis of the Senate Coronavirus Aid, Relief and Economic Security Act
- CARES Act provides tax relief to encourage charitable giving in 2020