Charitable Giving through the CARES Act

The COVID-19 pandemic has changed the daily reality for everyone in the US. Like many nonprofits, Lotus is looking closely at both our upcoming programming and our financial future, in a world where we can’t hold live ticketed events, and where businesses and friends are facing economic challenges.

Lotus is so very grateful for your generous support of our work over the years, and we hope that even now, you might consider finding ways to help us stay afloat. As a part of this conversation, we would like to draw your attention to new tax incentives for charitable giving that were included in the recently enacted Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. The goal of these incentives is to encourage individual giving to nonprofits, to ensure that organizations have the resources they need to continue to serve the public. Lotus is also applying for grant funds through the CARES Act, but the funding is not a sure thing, and there are many uncertainties along the way. We hope you’ll consider donating to Lotus and other nonprofits in need this year.

Incentives to Make Gifts to Charities

Non-itemizers are eligible for a special $300 charitable contribution deduction in 2020.

If you do not itemize your deductions in 2020, you can still reduce your taxable income by up to $300 for cash contributions to public charities. A married couple can reduce taxable income by $600 for these contributions.
For example:

  • A donor in the 10% tax bracket would receive a $30 tax break
  • A donor in the 22% tax bracket would receive a $66 tax break
  • A donor in the 35% tax bracket would receive a $105 tax break

This will also reduce the donor’s Adjusted Gross Income (AGI).

Charitable Distributions Still a Great Way to Donate

Most required minimum distributions from retirement plans have been eliminated for 2020. These charitable distributions are still a great way for donors age 70½ or older to make contributions. If you are 70½ or older, a qualified charitable distribution (“QCD” or “IRA charitable rollover”) allows you to contribute up to $100,000 to Lotus from your IRA without paying income tax. Although the usual benefit of counting toward your required minimum distribution has been waived for 2020, a qualified charitable distribution remains a great way for donors to make tax-advantageous contributions, especially donors who do not itemize their deductions.

Incentives to Make Large Gifts to Charities

Donors may deduct 100% of cash contributions to most public charities.

For the 2020 tax year only, you may deduct cash contributions to Lotus and most other public charities up to 100% of your adjusted gross income (AGI). Ordinarily these deductions would be limited to 60% of your adjusted gross income. This higher limit will allow especially generous donors to reduce their 2020 federal income tax to zero. Donors who are even more generous can carry forward unused cash-contribution deductions up to five years. Do note that the 100% limit is reduced dollar-for-dollar by other itemized charitable deductions, which means that your charitable deductions in 2020 cannot exceed 100%, but you may be able to carry unused charitable deductions forward to future years.

*Note, contributions to donor-advised funds are not eligible for this special election.

It is not a given that it will be to your advantage to deduct 100% of your cash contributions in 2020. Check with your financial or other advisors to determine whether the 100% election makes sense for your specific circumstances.

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Incentives for Corporations/Businesses to Make Gifts

Limits on cash contributions from corporations increased from 10% to 25% of taxable income in 2020 for cash gifts to public charities. The usual 10% limit still applies to other charitable contributions by corporations, and those contributions reduce the 25% limit dollar-for-dollar. Qualified cash contributions more than the 25% limit can be carried over for up to five years.

The CARES Act, which was necessary to address the far-reaching effects of the COVID19 pandemic, provides additional tax incentives to encourage charitable giving. You have important priorities for your family and loved ones, and we know that their health and financial well-being comes first. When you are ready, we will be here to help you shape a charitable gift that suits your needs and allows you to keep helping Lotus. Please contact Lotus at tamara@lotusfest.org or call 812-336-6599 and we will return your call.