Deduct 100% of Your Income With Charitable Gifts in 2020

The CARES Act allows individuals to deduct up to 100% of income in 2020 using charitable gifts of cash.1 To get this treatment, the deductible charitable gift must be a “qualified contribution.”

What is a qualified contribution? First, the taxpayer must elect this treatment for the gift.2 Also, the gift can’t go to a donor advised fund or a supporting organization.3 Finally, a qualified contribution requires:

  1. (i) such contribution is paid in cash during calendar year 2020 to an organization described in section 170(b)(1)(A)

To break it down, a qualified contribution is a deductible contribution that is:

  1. “paid in cash”
  2. “during calendar year 2020”
  3. “to an organization described in section 170(b)(1)(A)” (i.e., a public charity)

Let’s consider some examples:
 
Gift 1 – Cash

I donate a $1,000 check to a public charity on December 1, 2020. I deduct $1,000.

Is this $1,000 deductible contribution a “qualified contribution”?

Yes. All three elements are there.

 
Gift 2 – Quid pro quo cash

I donate a $1,000 check to a public charity on December 1, 2020, in exchange for admission to a gala dinner worth $100 according to IRS guidelines. I deduct $900.

Is this $900 deductible contribution a qualified contribution?

Yes. The $900 is a contribution paid in cash during calendar year 2020 to a public charity. The $100 is not a contribution. It is just payment for the dinner. In other words, the $100 part was a sale not a gift. Of course, we don’t have specific guidance here, but there is no reason to expect that such a gift would be treated differently. (There are areas where we can’t have benefits going to the donor, but those relate to private foundations, donor advised funds and certain charitable trusts, so they are not an issue here.)
 
What about charitable gift annuities and charitable remainder trusts funded with cash? For the rest of the story click here.
 
By Professor Russell James, J.D., Ph.D., CFP®, Texas Tech University

 
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1 SEC. 2205. Modification of Limitations on Charitable Contributions During 2020.
2 “(ii) the taxpayer has elected the application of this section with respect to such contribution.”
3 “(B) EXCEPTION.—Such term shall not include a contribution by a donor if the contribution is—
(i) to an organization described in section 509(a)(3) of the Internal Revenue Code of 1986, or (ii) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in section 4966(d)(2) of such Code).”

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