Increased Potential through CARES Act

How $300 from every donor could make a big difference!

For individuals or businesses that are interested in financially supporting Lancaster Mennonite or other nonprofits at this time, we would like to highlight a few aspects of the Coronavirus Aid, Relief, and Economic Stability Act (CARES Act) that may increase giving potential for some in the 2020 tax year.

Changes & Opportunities through the CARES Act

The CARES Act is extensive, so we’ve included below a few of the highlights that you could consider taking advantage of:

  • Up to $1,200 rebate payments are being issued for many individual and joint tax filers. For some individuals, this rebate may provide an unexpected giving opportunity.
  • Eligible taxpayers, whether or not they itemize deductions, will be able to take a deduction of up to $300 in qualifying tax-deductible cash contributions in 2020. This is particularly beneficial to those who normally file using the standard deduction.
  • Required minimum distributions (RMDs) are suspended for 2020.
  • Annual limits on cash gifts for taxpayers who itemize are increased from 60% to 100% of Adjusted Gross Income (AGI) in 2020.
    • This does not apply to donor-advised funds.
    • Some taxpayers may be able to utilize this increase to eliminate taxable income for 2020.
    • This may present a unique opportunity to sell depreciated stock and turn these assets into cash donations during 2020, either maximizing the increase on cash gifts or offsetting gains on the sale of appreciated assets.
  • Annual limits on cash gifts for corporations are increased from 10% to 25% of taxable income in 2020.
  • Especially for individuals whose normal giving capacity has been affected by COVID-19, this may be an opportunity to utilize money that has been invested in donor-advised funds.

The Educational Improvement Tax Credit (EITC) is a state program that allows eligible businesses to receive up to a 90% tax credit on contributions to an ETIC scholarship organization. In 2014, Pennsylvania’s EITC legislation was amended to allow certain individuals (rather than only businesses) to participate in the EITC tax credit program through what is called a Special Purpose Entity (SPE). Mr. Randy Tarpey, an accountant from Tyrone, PA, is the manager of an SPE called the Children’s Jubilee Scholarship #1 LCC. This SPE has been granted a significant amount of tax credits from the state that he is looking to distribute to private schools in central PA. Lancaster Mennonite School has an opportunity to fully fund our needs-based scholarship by maximizing this EITC capacity.

Consultation with a financial advisor is important for providing interpretation and recommendations based on the unique position of each taxpayer and business.