This isn’t exactly news, but it’s been a tough year.
In the midst of a pandemic and economic crisis, many have lost income. Some have lost loved ones.
Non-profits such as food banks are having difficulty keeping up with demand.
Perhaps you have been more fortunate and have donated money to charity this year.
Good news, Congress added a new tax break for charitable contributions this year as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Since Tax Reform took effect in 2018, fewer taxpayers are getting deductions for their charitable donations. Charitable contributions are deducted when a taxpayer itemizes deductions. After Tax Reform, far fewer people itemize their deductions. Only about 10% of taxpayers now itemize.
But thanks to a provision in the CARES Act, in 2020 every taxpayer can take advantage of a $300 universal deduction for charitable contributions. You can deduct $300 of charitable contributions even if you do not itemize.
The details:
- The donation must be made in 2020
- The donation must be cash
- You can use actual cash, check, debit/credit card, electronic fund transfer, or payroll deduction.
- Non-cash donations such as used clothing or appreciated stock cannot be used, however these can still be used by taxpayers who are itemizing.
- The recipient must be a 501(c)(3) public charity
- To find out ask the charity.
- Or type 501(c)(3) into the search box of any charity’s website and it will take you to the verbiage.
- Documentation needed:
- You must have one of the following for any single donation less than $250:
- A bank record such as canceled check, bank statement, or credit card statement that shows the name of the qualified organization, the date, and amount of the contribution. –OR—
- A receipt (or letter or other written communication such as email) from the qualified organization showing the name of the qualified organization, the date, and amount of the contribution.
- You must have one of the following for any single donation less than $250:
- For any single donation greater than $250 you must have:
- “Contemporaneous written acknowledgement” of your contribution from the qualified organization.
- Contemporaneous means you received it before the due date of the tax return.
- This written acknowledgement must include the date and amount of the contribution AND whether you received any goods or services as a result of your contribution.
- If you received any goods or services the acknowledgement must have a description and good faith estimate of the value of these items. Those amounts are not deductible.
- If you received any goods or services the acknowledgement must have a description and good faith estimate of the value of these items. Those amounts are not deductible.
- Note: you need to keep the documentation, but it does not have to be filed with your return.
- Note: the crumpled $10 bill you tossed in the church collection plate does not qualify.
- I get pushback about this all the time!
- If you give actual cash, you need a written receipt.
- “Contemporaneous written acknowledgement” of your contribution from the qualified organization.
The actual value of this $300 deduction is minimal – it depends on your tax bracket. For example, if you are in the 12% bracket, the amount of tax saved is only $36.**
Research shows that tax savings is not a primary motivator for people to give to charity. However, giving in a tax efficient manner means you have more dollars to give.
There are so many organizations doing good things, and many of them are having a hard time. So if you are able, I encourage you to help however you can.
**For the tax nerds – this is an above-the-line adjustment, so it reduces AGI. The reduction in AGI can have a domino effect since so many tax related calculations are tied to AGI. But over all this is a modest deduction.
