Charitable Contribution Extensions
The CARES Act included temporary changes to the limitation on charitable contributions in order to encourage taxpayers to support charities, hopefully lessening the impact of the pandemic on those in need. For individuals, the limitation on charitable contributions was increased from 60 percent of the contribution base to 100 percent for 2020. Also, individual taxpayers can claim a $300 above-the-line charitable contribution on 2020 tax returns.
Meanwhile, the CARES Act increased the percentage limitation on charitable contribution deductions for corporations from 10 percent to 25 percent for qualified cash contributions made in 2020. A corporation may carry forward for five years any qualifying contribution that exceeds the 25-percent limit. The deduction limitation for contributions of food inventory from any trade or business is also temporarily increased from 15 percent to 25 percent for donations of food inventories made during 2020.
All of these provisions are extended to 2021 under the new law.
The act also extends many popular tax breaks for individuals and businesses. These provisions, commonly known as extenders are generally extended every year or two for one or two years, and most were scheduled to expire at the end of 2020. Unlike previous years, the extensions are not uniform, some are extended to 2021 only, others to 2025, while others have been made permanent. A table of these extended provisions can be found below.
Disaster Tax Relief
The act also includes disaster tax relief for federally declared disaster areas during 2020. The relief includes the forgiveness of early-withdrawal penalties under Code Sec. 72(t) for qualified disaster distributions, the recontribution of amounts withdrawn for home purchases, and an increase in the amount of loans from qualified plans. An employee retention credit is also allowed for employers in affected areas, as well as special casualty loss rules for affected individuals.
The package of disaster tax relief is essentially the same as was historically provided in the wake of major disasters like hurricanes or wildfires. However, unlike the disaster-by-disaster approach that was taken in the past, this relief generally applies to all declared disasters during the period beginning January 1, 2020, and ending 60 days after the date of enactment of the act.
Business Meals Deduction
Finally, in an effort to shore up the dining industry, the act includes a temporary return of the business deduction for meals. The deduction, originally eliminated more than thirty years ago, allows for businesses to deduct the full amount of meals, including beverages, provided at a restaurant. The deduction is allowed for 2021 and 2022 only.