Special $300 Tax Deduction to Help Charity Giving this Year

Dec 4, 2020 | COVID-19, GTM Blog, Tax & Wage Laws

You may be able to take advantage of a special new provision in the CARES Act that allows you to deduct up to $300 in donations to qualifying charities this year. It applies even if you take the standard deduction instead of itemizing your deductions.

You may be able to take advantage of a special new provision that will allow you to easily deduct up to $300 in donations to qualifying charities this year. It applies even if you take the standard deduction instead of itemizing your deductions.

Following special tax law changes made earlier this year, cash donations of up to $300 made before December 31, 2020, are now deductible when you file your taxes in 2021.

The IRS is encouraging taxpayers to explore this option to help deserving tax-exempt organizations – and the people and causes they serve.

The changes were made to bolster charitable organizations especially those that may be struggling to provide help to those suffering from the COVID-19 pandemic.

The new provision allows for up to $300 in cash donations to qualifying organizations to be deducted from your income. If you are married and filing jointly, your deduction is still limited to $300.

For someone in the 37 percent bracket, the charitable contribution deduction this year would be worth $111.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted last spring, includes several temporary tax changes helping charities, including the special $300 deduction designed especially for people who choose to take the standard deduction, rather than itemizing their deductions.

Typically, charitable contributions could only be a deduction if you itemize your personal deductions. In 2018, the Tax Cuts and Job Act nearly doubled the standard deduction as well as eliminated personal exemptions and several itemized deductions. As a result, nearly nine in 10 taxpayers now take the standard deduction and are unable to deduct their charitable contributions.

However, these taxpayers could potentially qualify for this new tax deduction.

If you continue to itemize your deductions, the CARES Act allows you to deduct up to 100 percent of your adjusted gross income (AGI) for cash donations, instead of the limit of 60 percent. For example, if your AGI is $100,000, you may deduct $100,000 in charitable contributions rather than $60,000.

Under this new change, you can claim an “above-the-line” deduction of up to $300 for cash donations made to charity during 2020. This means the deduction lowers both adjusted gross income and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations.

On the draft Form 1040 for the 2020 tax year, your qualifying charitable contribution will be entered on line 10b of the form.

Before making a donation, check the special Tax Exempt Organization Search tool on IRS.gov to make sure the organization is eligible for tax-deductible donations.

Cash donations include those made by check, credit card, or debit card. They do not include securities, household items like clothing, or other property. Though cash contributions to most charitable organizations qualify, some do not. Check Publication 526, Charitable Contributions, and the TEOS for more information.

This deduction applies only to 501(c) (3) public charities. Cash contributions made to non-operating private foundations, support organizations, and donor-advised funds do not qualify.

As a reminder, you should keep good records of your donations. By law, special recordkeeping rules apply if you claim a charitable contribution deduction. Usually, this includes obtaining a receipt or acknowledgment letter from the charity, before filing a return, and retaining a canceled check or credit card receipt. For details on these recordkeeping rules, see Publication 526, available on IRS.gov.