Giving to charity is admirable in its own right, but it doesn’t hurt if you can get a tax break, too. Unfortunately, tax incentives for charitable giving have been much harder for individual taxpayers to take advantage of in recent years. The good news is that things have changed for 2020.
A provision under the CARES Act ― the comprehensive coronavirus stimulus package passed in March ― makes it possible to write off up to $300 in certain charitable contributions without having to itemize your taxes. According to the Internal Revenue Service, nearly 9 in 10 taxpayers currently take the standard deduction and could potentially qualify for this new deduction.
So if you donated money this year, especially to pandemic-related causes, find out how to claim it:
How Does The $300 Charitable Contribution Deduction Work?
Previously, you could deduct all your donations to charities as long as you itemize deductions on your taxes. And to itemize deductions, the total amount of your write-offs needed to be more than the standard deduction. However, the Tax Cuts and Jobs Act that went into effect in 2018 made it much tougher for that to happen.
In addition to killing off several deductions, the 2018 tax law nearly doubled the standard deduction from $6,500 to $12,000 for individual filers and $13,000 to $24,000 for joint returns. And each year, the standard deduction increases slightly. As a result, way fewer people now qualify to itemize.
However, under the CARES Act, taxpayers are now allowed to deduct some of their donations for 2020 even if they don’t itemize. “They want people to support charities that are fighting the COVID fight,” said Jeremiah Barlow, executive vice president at Mercer Advisors.
This deduction is considered an “above the line” tax deduction, according to Barlow. That means you can deduct up to $300 in qualifying donations from your taxable income even if you claim the standard deduction.
And though the goal is to incentivize giving to COVID-19 causes, donations to just about 501(c)(3) charitable organizations can qualify. However, you can deduct only cash donations. That means if you donated food, household goods, or other non-monetary items to a charity, it doesn’t count toward the $300 above-the-line deduction. Of course, if you plan to itemize, you can write off these types of donations as you normally would.
Also, keep in mind that this is a tax deduction, not a credit, meaning your tax bill does not get a dollar-for-dollar reduction of $300. Instead, your taxable income is lowered by up to $300; the actual savings on your tax bill depends on your tax bracket.
For example, if your income is taxed at 10%, claiming the full $300 deduction would result in $30 off your tax bill for 2020. If your effective tax rate is 25%, the deduction would be worth $75. It’s not a ton of money, but every little bit helps, especially in the current economy.
If you plan to claim this deduction, make sure you keep a receipt or some written acknowledgment from the charity on file as proof. You won’t be required to submit the receipt along with your taxes, but you should have it on hand in case you’re audited.
Will This Deduction Be Available In 2021?
With just a couple of weeks left before the year is over, you still have some time to make a qualifying donation and claim this deduction on your 2020 taxes. But what if you miss out and want to take advantage of next year?
Most of the programs established under the CARES Act expire on Dec. 31. But there are ongoing negotiations for future stimulus measures, and it’s not out of the question that this deduction could be available next year, too. “I think the purpose of this would still be applicable in 2021,” Barlow said. “The CARES Act was meant to handle and help with the economic difficulties associated with what’s happening due to COVID, and that is expected to continue into 2021.”