2020 Year-End Tax Guide

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THE MARCUM 2020 YEAR- END TAX GUIDE

The CARES Act provides protection for nonprofits facing historical levels of unemployment benefit claims. “ ”

Nonprofit Stimulus:

Year in Review

TAX INCENTIVES FOR DONORS In addition to all of the assistance offered to

For corporations, the annual cash gift limit has increased from 10% to 25% of corporate

taxable income. In the case of partnerships, limited liability companies or S corporations, each partner or shareholder will individually receive the benefit of the increased charitable deduction on their personal income tax returns. (Also note that this tax benefit does not apply to contributions to DAFs.) In addition to cash donations, food donations are enhanced by raising the deduction from 15% to 25% of AGI for the 2020 taxable year. This deduction is available for individuals and businesses. This means that a donor with $100,000 of taxable income could reduce taxable income by up to $25,000 worth of contributed food, resulting in a taxable income reduced to $75,000. As noted, donations in excess of more than 25% of AGI will be eligible to be carried over to the next year. CONCLUSION As the pandemic continues, it is likely Congress will pass future stimulus packages. Talks occurring on Capitol Hill currently include modification to the PPP program, enhanced above-the-line deductions for charitable contributions, another round of direct stimulus to individuals, and a number of additional changes that could impact the nonprofit sector. Marcum’s Nonprofit & Social Sector industry group will continue to monitor these developments so that nonprofit boards and other leadership groups have the most up-to-date information on available stimulus options. Contact your Marcum professional for assistance in navigating through these challenging times.

small businesses and nonprofits, the CARES Act also recognizes the potential for individuals and businesses to step up to support nonprofit organizations during these trying times. As a result, the authors of the Act provided some new tax benefits to encourage donations. An individual who makes a contribution to a qualified nonprofit must itemize deductions on Schedule A of their personal income tax return Form 1040 to receive a deduction. With the increase in the standard deduction under the Tax Cut and Jobs Act of 2017, there was concern that individual charitable contributions would decrease. Taxpayers this year can take a deduction for up to $300 ($600 for married couple filing jointly) in charitable contributions directly from their adjusted gross income (AGI) even if they don’t itemize on their 2020 tax form. A donation to a donor advised fund (DAF) does not qualify for this new deduction. For donors who can afford to give higher amounts, the deduction for charitable donations will not be limited by personal adjusted gross income (AGI). Previously, such deductions were limited to a maximum of 60% AGI. This means that donors can now deduct 100% of AGI related to any cash gifts to qualified nonprofits. (For purposes of this discussion, AGI is all income, prior to itemized deductions.) It may be important to note that if the donor gives more than their AGI in 2020, there is a carry forward allowed for up to five years for the excess, but in future years the AGI limitation may be lower. In addition, this deduction does not apply to contributions to private foundations or to DAFs. Required Minimum Distributions (RMDs) are the minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches age 72 (or age 70½ before January 1, 2020). The RMD that would have been required in 2020 does not have to be distributed until 2021, including distributions from defined benefit pension plans and 457 plans. This change dampens somewhat the incentive for a donor to make a qualified charitable distribution (QCD) from an IRA in 2020. Even so, making a QCD this year will still allow itemizers and non-itemizers to direct up to $100,000 from their IRAs to charities in a tax efficient manner.