By Carolyn Lange, Community Foundation of New Jersey, reprinted with permission
The coronavirus has changed all our lives, but for many this year has been nothing short of devastating. Fortunately, the federal government has added new tax rules so individuals who have a little extra are encouraged to help those who are less fortunate. The new rules provide expanded benefits for New Jerseyans to give to their favorite causes, providing a much-needed boost to hard-hit communities and the non-profits that serve them.
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, creates rare giving incentives for taxpayers at both ends of the income scale, with an eye toward addressing our communities’ challenges.
Individuals who do not itemize their taxes (a larger group than in past years given the doubling of the standard deduction to $12,000 for individuals and $24,000 for those filing jointly) will be able to deduct charitable contributions for the first time in 40 years. This deduction is limited to $300 for individual taxpayers and $600 for households filing jointly. Nearly 80% of taxpayers take the standard deduction so this new incentive is available to an enormous pool of potential donors.
Individuals who itemize deductions and seek to deduct as much as possible from their adjusted gross income (AGI) can now deduct up to 100% of their AGI. In past years, donors could only deduct 60% of their AGI through cash contributions to public charities; for 2020, that limit was raised to 100%.
Donating long-term appreciated securities or distributions from an IRA remain popular and effective options for reducing one’s overall tax burden while creating new philanthropy, though the rules associated with such gifts were not materially changed by the CARES Act. Donors who have realized significant capital gains, whether through stock, bonds, or real estate, are still subject to deduction limitations and should consult their financial and tax advisors.
The new tax rules relating to charitable giving from the CARES Act could not have come at a more critical time. We encourage all New Jersey residents who feel fortunate this year to reach out and give to those who need it most by supporting the hard-working organizations serving our communities and neighbors in this challenging time.