Starting in 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) expanded the deductibility of charitable contributions to incentivize charitable giving during 2020. The Consolidated Appropriations Act (the “CAA”), which was passed on December 27, 2020, extended and expanded many provisions of the CARES Act for 2021, which continues to make this a favorable time for making charitable contributions.

Some of the extended (and modified) benefits for charitable giving under the CAA are detailed below.

For individual taxpayers who take the standard deduction: Individual taxpayers who take the standard deduction may deduct charitable gifts up to $300. In 2021, married couples who file joint returns can deduct charitable gifts up to $600. This is an increase, as prior to the CARES Act, taxpayers who take the standard deduction cannot get a deduction for charitable gifts. This is referred to as the “universal deduction” and is an above-the-line deduction.

The requirements for deductibility:

• Donations must be in cash. This does not apply to contributions of property, marketable securities, real property, or otherwise.
• The donation must be to a public charity. Donations to donor advised funds or most private foundations will not qualify.

For individual taxpayers who itemize deductions: Individual taxpayers who itemize their deductions may now deduct certain charitable contributions up to 100% of the taxpayer’s adjusted gross income (“AGI”). Prior to the CARES Act, taxpayers were limited to deducting certain charitable contributions up to 60% of the taxpayer’s adjusted gross income.

The requirements for deductibility up to 100% of AGI:

• Donations must be in cash.
• Donations must be made to a public charity (not to a donor advised fund or most private foundations).
• Donations must be made during 2021.

If a donor gives more than 100% of their adjusted gross income, the donor may carry forward excess deductions for up to five subsequent tax years; though, the enhanced deductibility is set to expire after 2021.

For corporate taxpayers: Corporations may deduct up to 25% of taxable income. This is up from the 10% limit, which generally applied to corporations prior to the CARES Act.

The requirements for deductibility:

• Donations must be in cash.
• Donations must be made to a public charity (not to a donor advised fund or most private foundations).
• Donations must be made during 2020.

The CAA also increases penalties for taxpayers who take the standard deduction who overstate the value of charitable gifts. If the IRS determines a taxpayer has overstated a charitable tax deduction, the taxpayer may be assessed a penalty of 50% of their total deduction amount, an increase from 20% under prior law.

For assistance understanding legal issues related to tax and estate planning, we encourage you to engage with a Schwabe attorney today. This article summarizes aspects of the law; it does not constitute legal advice. For legal advice for your situation, you should contact an attorney.