Big Tax Changes for Charitable Giving
Prior to the passage of the CARES Act last year, charitable contributions were only deductible if you itemized your tax return instead of claiming the standard deduction. With a 2020 standard deduction of $12,400 for single filers and $24,800 for married filing jointly filers, most won't have enough deductions to justify itemizing their return.
With the passage of the CARES Act, the IRS now allows up to $300 of charitable contributions to be deducted "above the line" for each each 2020 tax return. This means that filers, who were previously excluded from the benefit their charitable contributions because they claimed the standard deduction, can now reduce their income by up to $300 for their 2020 tax return. Of course, this requires that you actually made up to $300 of eligible charitable contributions during 2020.
Previously, charitable contributions could only be deducted if taxpayers itemized their deductions.
However, taxpayers who don't itemize deductions may take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For the purposes of this deduction, qualifying organizations are those that are religious, charitable, educational, scientific or literary in purpose. The law changed in this area due to the Coronavirus Aid, Relief, and Economic Security Act.
The CARES Act also temporarily suspends limits on charitable contributions and temporarily increases limits on contributions of food inventory.
The good news doesn't stop there. For 2021 tax return filing, married couples filing jointly will be able to deduct up to $600.
For the 2021 tax year, people who take the standard deduction can deduction up to $300 of cash donations to charity. Note the emphasis on the word "cash" – this deduction isn't available if you donate a car, clothing, food, furniture, or any other property. Donations to donor advised funds and certain organizations that support charities are not deductible, either. Contributions carried forward from prior years and most cash contributions to charitable remainder trusts are excluded, too.
The $300 amount is per person. So, if you're married and filing a joint return, you can deduct a total of $600 on your 2021 tax return (which you'll file in 2022). The deduction won't reduce your 2021 adjusted gross income, though.
This new deduction was originally allowed for 2020 returns only. However, the recent COVID-relief and government spending bill extended the $300 charitable deduction for non-itemizers for another year. There are some differences between the 2020 and 2021 deduction, though. For instance, the maximum deduction for joint filers is $300 for 2020 returns. The 2020 deduction also reduces your AGI.
Although the 2021 deduction won't decrease your AGI, it will still decrease you tax liability. This new deduction has the potential to save you a couple hundred dollars on your taxes in 2020 and 2021. So hold onto those donation receipts!
If you need help filing your tax returns for 2020 or 2021, please don't hesitate reaching out to us for help. We are highly credentialed and provide competitive pricing for tax preparation.