The word charity evokes the work of people and organizations to provide for those in need. While this understanding certainly captures the modern notion of the word, its etymological history tells us that there is a deeper meaning to be found in the concept of charity. Our English word is derived from the Latin word, caritas. Caritas is one of many Latin words to describe the idea of love, reflecting a selfless love for humanity. Charitable works can therefore be understood as a sign of love.
In the context of our current economic difficulties, I cannot think of a time more in need of that kind of selfless love. Fortunately, through the CARES Act, Congress provided new tax incentives for us to demonstrate love to others during this difficult time.
CARES ACT AND NEW TAX INCENTIVE
For the 2020 tax year, individuals have access to a new tax deduction of up to $300 for contributions to a qualifying public charity. Couples can claim up to $600.
This new deduction is “above-the-line,” meaning that it effectively reduces a taxpayer’s adjusted gross income (AGI). So, you don’t need to itemize to claim this deduction, which is especially significant considering that fewer than nine out 10 taxpayers itemize deductions after the law changes in the 2017 Tax Cuts and Jobs Act.
Itemizers aren’t left out of the increased incentives. For those taxpayers, the deductibility of cash contributions to public charities has been increased to 100% of AGI for 2020. This increase is a significant change to the existing law, which capped deductible contributions at 60%.
There are also incentives for businesses which can now deduct up to 25% of taxable income, an increased from 10%.
As you can see, 2020 offers the rare opportunity to access new tax deductions for doing something good.
If you are thinking about demonstrating love to others by making charitable contributions this year, we encourage you to consult with your tax advisor to understand its impact on your specific situation.