Looking to do some charitable giving before Christmas and maximize a tax break at the same time?
The CARES Act allows taxpayers to deduct up to $300 of their 2020 cash donations to qualifying organizations without itemizing.
How is the CARES Act $300 deduction different from the regular charitable contribution deduction?
In a typical year, only those who itemize their deductions are able to take a deduction for charitable contributions. The itemized deduction for donations reduces taxable income after the donor’s adjusted gross income (AGI) has been calculated.
The new $300 deduction from the CARES Act, on the other hand, is specifically for those who don’t itemize their deductions and would typically not get any tax benefit for donations. Since it’s considered an above-the-line deduction, it reduces your income prior to determining your AGI.
In plain English, if you donate up to $300 in cash (up to $600 for married couples filing jointly) to a qualified organization, your AGI will be reduced by your donation amounts. That ultimately lowers your tax bill—and you can still claim the standard deduction.
Can you take the new $300 deduction if you itemize deductions?
No, if you itemize, you will still claim all of your charitable donations on Schedule A.
Does the CARES Act affect the regular charitable contributions deduction, too?
It does for those who are very philanthropic. The CARES Act raised the bar for the deductible amount of donations for those itemizing deductions too – it’s now up from 60% to 100% of AGI, so (hypothetically) you could donate your entire year’s income.
How does the new deduction help provide COVID-19 relief?
Providing tax benefits for those who claim the standard deduction means that any taxpayer, regardless of whether they itemize, can now get a tax break for their generosity.
This is a big deal, especially when you consider that the increased standard deduction brought about by Tax Cuts & Jobs Act of 2017 drastically reduced the number of taxpayers who qualify to itemized deductions.
It’s an incentive to give in 2020 and have less taxes owed when you file in 2021, so people are encouraged to help now.
Remember that the deduction only applies to cash donations made to qualified 501(c)(3) organizations, so be mindful of where you send money if you want to claim the deduction. The IRS.gov site has a database with every qualified organization, which you can search to make sure your charity of choice qualifies.