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The CARES Act and the Charitable Deduction

Tax Efficient Giving - CARES Act

The CARES (Coronavirus Aid, Relief, and Economic Security) Act was signed into US law in March 2020.

The CARES Act removes the limit for the amount of charitable deductions US taxpayers can claim. For 2020 US taxpayers can deduct all of their charitable gifts made across the year from their adjusted gross income (AGI), thereby reducing, or even potentially eliminating completely, a federal income tax bill.

What is the Charitable Deduction?

When US taxpayers go through the process of submitting their tax paperwork to the IRS each year, one of the potential deductions you can claim is the ‘Charitable Deduction.’ In order to be able to take advantage of the Charitable Deduction, you must “itemize” your tax deductions and this only makes sense to do if you can “itemize” more than the standard deduction amount – which is set at $24,800 for married couples filing jointly or $12,400 for individuals. So, what we describe below only comes into play for gifts over these amounts.

The Charitable Deduction allows you to lower your taxable income, known as Adjusted Gross Income (AGI) and lower your tax bill for gifts made to qualified, tax-exempt charities such as 501(c)(3)’s like The Magdalene College Foundation.

What is AGI?

Your AGI is your gross income — which includes wages, dividends, alimony, capital gains, business income, retirement distributions and other income — minus certain payments you’ve made during the year, such as student loan interest or contributions to a traditional individual retirement account or a health savings account.

How did the CARES Act change the Charitable Deduction?

There are usually rules which limit how much of a charitable deduction you can take each year. Previously, you could claim a charitable deduction for gifts made to public charities of up to 60% of your AGI for cash gifts, up to 30% for gifts of appreciated assets (stock) or up to 50% for a mixture of cash and appreciated assets.

The CARES Act removes the charitable deduction cap on gifts to public charities (note: this excludes Donor Advised Funds and Supporting Organizations) meaning you can deduct up to 100% of AGI for 2020. Any excess contributions can be carried over to the next five years but will be subject to the normal 60% of AGI limit.

CARES Act donation example

For 2020, if your AGI is $100,000, you may deduct $100,000 in charitable contributions and wipe out your income tax liability entirely.

Previously, if your AGI was $100,000 you could deduct no more $60,000 in charitable contributions; so, if you contributed $70,000, the extra $10,000 would have had to be carried forward and deducted the following year.

Emergency Fund Support

In these unprecedented and uncertain times we have taken the decision to concentrate on raising funds to help to help our people. The students and academic researchers suddenly facing unexpected and exceptional financial difficulties. We have created an Emergency Fund to give the Senior Bursar the freedom to respond to immediate pressing needs swiftly and generously. Thank you very much for choosing to support us particularly at this difficult time. Every single gift will make a very real difference to your College now.

Donations in support of the Emergency Fund are included on the Future Foundations Campaign.

Thank you so much for choosing to support your College, we appreciate your loyalty and commitment to Magdalene greatly.

Support the Emergency Fund >>