CARES Act and Charitable Giving

The CARES (Coronavirus Aid, Relief, and Economic Security) Act was passed on March 27, 2020 to provide relief for individuals, businesses, medical centers and nonprofits. Among many other provisions, the bill made changes to encourage charitable giving to nonprofits, such as SYA, by making revisions to the Internal Revenue Code. As a result, your direct support of SYA this year can benefit you on your 2020 tax return. The specific provisions of the CARES Act related to charitable giving are referenced by page and section of the bill, for your convenience.

The opportunity to take advantage of these changes closes on December 31, 2020.

Three New Tax Benefits to Donors

Universal Deduction for Donations Up to $300
Charitable deductions are back! If you take the standard deduction on your 2020 tax return (the one that you'll file in 2021), you can claim a brand new "above-the-line" deduction of up to $300 for cash donations to charity you make this year. That includes your support of SYA!

Donations to donor advised funds and certain organizations that support charities are not deductible. Normally, you have to itemize on Schedule A to get a tax break for charitable donations. In this case, though, it's the other way around—if you itemize, you can't take this new deduction. (H.R. 748-65; Sec. 2204)

Raising the Charitable Giving Deduction Cap
If you itemize on Schedule A of your tax return, you can claim a deduction for your charitable donations. However, the amount you can deduct for cash contributions is generally limited to 60% of your adjusted gross income (AGI). Any cash donations over that amount can be carried over for up to five years and deducted later.

The CARES Act lifts the 60% of AGI limit for cash donations made in 2020 (although there's still a 100% of AGI limit on all charitable contributions). That means itemizers can deduct more of their charitable cash contributions this year, which will hopefully boost charitable giving. As with the new above-the-line deduction, donations to donor advised funds and supporting organizations don't count. (H.R. 748-65; Sec. 2205)

Required minimum distributions (RMDs) from qualified retirement plans are suspended
Due to the unlimited charitable deduction allowed for cash gifts this year – even exceeding 100% of AGI – donors can ask IRA holders to sell assets (above the amount of the RMD) and distribute the proceeds to them in cash. They can then turn around and donate the cash, realizing an offsetting income tax deduction for the full amount. (H.R. 748-63; Sec. 2203)

The tax information provided is general and educational in nature. School Year Abroad does not provide legal or tax advice. Always consult a tax professional regarding your tax situation.