Tax Tuesday – Z Wealth Solutions
The CARES Act and Its Impact on Individual Charitable Donations
Michael Zager | Founder and CEO, Z Wealth Solutions | www.zwealthsolutions.com
The Coronavirus Aid, Relief and Economic Security (CARES) Act, passed earlier this year, aims to provide relief and resources for American individuals, families, and businesses during the economic crisis brought about by the global pandemic. Included in the bill are new and enhanced deductions for charitable contributions to enable more Americans to donate financially to non-profit entities that provide support to local communities. When the Tax Cuts & Jobs Act of 2017 went into effect, an unintended byproduct was a drop-off in individual charitable donations, due to the increased standard deduction and the fact that fewer Americans qualified to itemize deductions. The CARES Act addresses this by providing an above the line deduction for qualifying cash contributions for those taking the standard deduction and increases the limit for deductible cash contributions for those still itemizing deductions.
If you are one of the approximately 9 out of 10 Americans who will take the standard deduction when filing your taxes for 2020, you are now able to claim up to $300 as an above-the-line deduction (or $600 for married couples filing jointly) in addition to your standard deduction. Above-the-line deductions allow you to reduce your taxable income by that dollar amount, resulting in a lower adjusted gross income for the year. To qualify for the deduction, the donation or donations must be made in cash to a 501(c)(3) designated public non-profit organization during the 2020 calendar year. The deduction does not apply to any contributions made to donor-advised funds, or 509(a)(3) organizations. You can look up any charitable organization you’re interested in donating to and confirm their eligibility at www.IRS.gov. On the homepage, select Charities and Nonprofits from the main menu, and then scroll to select Tax Exempt Organization Search in the main body of the page.
If you qualify to itemize your deductions, the limit for deductible contributions to 501(c)(3) public nonprofit organizations has been increased from 60% of your adjusted gross income to 100%, so if able, you can technically donate your entire annual income for 2020 to qualified recipients and reduce your taxable income to $0. Any donations exceeding your adjusted gross income can be carried forward for use in future years.
Charitable giving is something we do from our hearts, but the CARES Act recognizes the unique financial strain the pandemic has placed on a lot of Americans. Taking advantage of these new deductions allows us to give and receive in return during a time when our donations are needed more than ever. If you have questions regarding any of the information contained within this article, please reach out to a qualified tax or financial professional for advice.
Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. www.SIPC.org. Z Wealth Solutions is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. 1000 Corporate Drive, Suite 700, Fort Lauderdale, FL 33334, 954-938-8800. The views and opinions expressed are those of Z Wealth Solutions. These views are not necessarily those of MML Investors Services, LLC or its affiliated companies. CRN202209-271227