As amended by the Consolidated Appropriations Act, 2021, the Coronavirus Aid, Relief, and Economic Security (CARES) Act offers enhanced tax incentives for making charitable contributions for the 2020 and 2021 tax year. In addition, the Consolidated Appropriations Act, 2021 extends tax benefits for qualified disaster relief contributions by corporations.

Individuals

In general, the itemized charitable deduction for individuals is limited to a percentage of the taxpayer’s adjusted gross income (AGI). The percentage is determined by the type of organization receiving the donation and the type of property donated. For 2020 and 2021, the 60-percent limitation on the deduction of charitable contributions is suspended. Individuals may deduct qualified cash contributions up to 100 percent of AGI. Any qualifying cash contributions that exceed their contribution base may be carried forward five years.

A qualified contribution for this purpose is a charitable contribution made in cash to churches, nonprofit educational institutions, nonprofit medical institutions, public charities, or any other qualifying organization. The contribution cannot be made to a supporting private foundation or a new or existing donor advised fund.

Corporations

A corporation’s deduction is generally limited to 10 percent of the corporation’s taxable income, computed with certain adjustments. Under the CARES Act, the percentage limitation on the charitable contribution deduction for corporations is increased to 25 percent for the 2020 and 2021 tax years.

Qualified Disaster Relief Charitable Contributions. The percentage limitation on charitable contribution deductions for corporations is temporarily increased from 25 percent to 100 percent for qualified disaster relief contributions made during the period beginning on January 1, 2020, and ending February 25, 2021.

Food Inventory

Corporate and non-corporate taxpayers are entitled to an enhanced deduction for charitable donations of food inventory from any trade or business. The food inventory must consist of items fit for human consumption and be contributed to a qualified charity or private operating foundation for use in the care of the ill, the needy, or infants. Generally, a noncorporate taxpayer’s total deduction for food inventory donations during the tax year is limited to a maximum of 15 percent of the taxpayer’s net income from all trades and businesses from which the donations are made during the tax year. In the case of a C corporation, the deduction is limited to 15 percent of the corporation’s taxable income. Under the CARES Act, the deduction for the contribution of food inventory is increased from 15 percent to 25 percent for the 2020 and 2021 tax years.

If you would like more information on how you may benefit from the modifications to the charitable contribution limits, please call our office. We are here to help you.

Venkat Iyer. CPA(USA). CPA(Canada). MBA

Venkat holds a CPA credential both in the USA and Canada, and he is very proficient in tax and compliance requirements in both countries. He is a Seasoned Business Adviser with 18+ years of extensive experience in diversified industries and accounting firms.He is also very prominent in implementing Lean Principles and Strong Financial Foundations for Hotels and Restaurants. He believes the key to any business success is knowing their indicators and their impact. He has been helping businesses with predictive analytics, transforming data from their enterprise's system for delivering meaningful insights.He is also a Business Automation Expert helping streamline the workflows from marketing to management to ensure optimal business performance.