Your Business Credit

How to make the most of the CARES Act tax deduction for charitable giving

Many Americans are being compelled by COVID and social justice issues to give more to charity this year


If you plan to give to a public charity this year, you may be able to benefit from a tax deduction – for yourself or for your business – passed under the Coronavirus Aid, Relief and Economic Security Act. Here’s how it works.

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Many Americans have been galvanized by the coronavirus pandemic and headlines about social justice into giving more to charity.

Nearly 20% of consumers said they planned to give more this year in a survey on Classy, a fundraising platform. That’s good news, given that many charities have been suffering from declining donations.

If you are giving to a public charity, you may be able to benefit from a tax deduction – for yourself or for your business – passed under the Coronavirus Aid, Relief and Economic Security Act. The gift must be cash, not donated items.

Check out all the answers from our credit card experts.

Ask Elaine a question.

Many people aren’t aware that the CARES Act – the stimulus package passed to bring relief to both individuals and businesses – gives a tax deduction to each taxpayer for charitable giving, as long as they take the standard deduction and don’t itemize.

The limit is $300 per individual or $600 per married couple. The deduction is taken off of the taxpayer’s adjusted gross income. Individuals who opt to take the deduction can take up to 100% of their 2020 adjusted gross income.

Businesses can also take the deduction. Under the law, C corporations can deduct up to 25% of adjusted gross income, up from 10%, and are able to take deductions for donations greater than 25% in the following five years.

The amount of food corporations can donate has increased from 15% to 25% of their adjusted gross income. The deduction for food donations is usually limited to the cost of the inventory or fair market value, whichever number is lower. If a partnership or S corp makes a donation, each partner or shareholder must make an election on their tax return to take it, according to the law firm Skadden.

See related: Does your small business qualify for an R&D tax credit?

Where and how should you give?

If your business hasn’t done any charitable giving before, this could be a good incentive to donate. So where should you give?

Many small businesses like to make sure their donations fit their companies’ core values. Some businesses make it a practice to ask employees for ideas on causes to which they might donate. Setting up a committee of employees to make decisions can help to ensure that everyone’s suggestions get due consideration. Charity Navigator can help you research potential charities to find out their track record in areas like financial health and transparency.

Should you tell the world about your donations? Some businesses make it a point to share the fact that they donate some of their profits to charities. Today, many consumers like to see their favorite businesses take a stand on important issues and give back to the community.

Other businesses prefer to give quietly. The best way to do it is however you are comfortable. You don’t have to post about your donation on Instagram for your gift to matter.

See related: A case for good in times of uncertainty

Bottom line

The key with any charitable gift is to give from the heart. The tax deductions the CARES Act allows can help you reduce your tax bill but ultimately, giving is about making a difference. In today’s economy, a gift of several hundred dollars can go a long way for a charity.

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