As the year draws to an end, so does the opportunity to maximise your tax savings under the United States Coronavirus Aid, Relief, and Economic Security (CARES) Act. Over the past two years, the CARES Act significantly increased the tax benefits for donating to charity, and these benefits will expire at the end of the year. Here we will explore what they are and how you can take advantage of them while supporting causes that are vital to students at Stellenbosch University.
The CARES Act, which regulates the COVID‑19 relief package, has two important tax provisions to encourage charitable giving in 2020/2021. Firstly, it allows taxpayers to deduct up to $300 of their charitable donations without having to first itemise their deductions. Secondly, the 60% cap for taxpayers who do itemise their deductions has been increased to 100% of their adjusted gross income. Let us explore what that means and how it affects your donations.
Before the CARES Act came into effect, only taxpayers who itemised their deductions could deduct charitable contributions from their taxable income. Itemising deductions is the process of deducting certain expenses to lower your taxable income. These are offered by the government to incentivise expenditure on a number of things, such as buying a house. Those who do itemise their deductions can still claim a charitable contributions deduction, but in order to promote charitable giving the deductible amount has been raised from 60% to 100%.
Additionally, the CARES Act now allows taxpayers to deduct up to $300 of their cash donations to charitable organisations that qualify, without having to itemise their deductions. This expands the tax benefit for charitable donations to a larger portion of the population. This is referred to as an 'above-the-line' deduction, which means it will reduce both your adjusted gross income and your taxable income, and ultimately reduce the amount of federal tax owed. The $300 deduction is only for cash donations, which includes currency, cheques, credit or debit cards and EFTs, and it only applies to qualifying (501(c)(3)) organisations. The Friends of the University of Stellenbosch Foundation is a registered foundation that falls under article 501(c)(3) of the Internal Revenue Code. Therefore, if you donate to one of the projects under our annual Bridge the Gap Campaign, you will be eligible to claim a deduction under the CARES Act.
Donating long-term appreciated assets such as stocks is another clever giving strategy. According to the IRS, if you donate property other than cash you can generally deduct the fair market value of the property from your income tax. This could be another method of donating to the Friends of the University of Stellenbosch Foundation.
In order to benefit from these extraordinary tax incentives under the CARES Act, you will need to make your charitable contributions by the end of the tax year, as they will expire by 2022. The Bridge the Gap Annual Fund supports a range of causes that are vital to students at your alma mater, and all contributions will qualify as tax deductions through the Friends of the University of Stellenbosch Foundation.