Charitable Donations and the CARES Act Tax Benefit for 2020

Chris Ladd, CFP®, CCFC

As we are all getting into the giving mood for the holidays, let's remember that there are a lot more people and charitable organizations that can use assistance in 2020 than in recent years past. While donating to charities is often done because it makes you feel good to help others, the added financial benefit is that it can also lower your tax obligation.

This year charitable contributions can count even more toward lowering your tax bills. Thanks to the CARES Act, which passed in late March 2020 amidst the coronavirus pandemic, your giving could stretch even further this tax season.

For a little more incentive to make that donation today, Tuesday, December 1, 2020 is Giving Tuesday. Many charities and non-profit organizations provide matching donations on Giving Tuesday, so your contribution can go even further.

How Is This Year’s Charitable Contribution Exemption Different?

Thanks to the CARES Act, filers will be allowed to take a $300 above-the-line charitable giving deduction.1 This is significant because, typically, you would have to itemize deductions in order to deduct charitable donations from your taxes.

With changes introduced through the CARES Act, this above-the-line deduction can be used for those who choose to take the standard deduction. The standard deduction for 2020 is $12,400 for single and married filing separately, $24,800 for married filing jointly and $18,650 for head of households.2 An important point to note is that the $300 limit is per tax return, whether you're filing as single, married filing jointly, or head of household.

Who Benefits From This Change?

This CARES Act exemption is not available for those who itemize their deductions and is only for those who are using the standard deduction on their 2020 tax returns. This is significant because in the past anyone taking a standard deduction has not been able to reduce their adjusted gross income (AGI) by claiming charitable contributions.

Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify for this new tax deduction. In tax-year 2018, the most recent year for which complete figures are available, more than 134 million taxpayers (over 87% of all filers) claimed the standard deduction, according to the IRS. 

What Donations Count Toward the CARES Act Deduction?

Just as any other charitable contribution deducted from your taxes, eligible donations must be made to qualified organization as outlined in section 170(c) of the Internal Revenue Code.1 To ensure your charity of choice is a legitimate 501(c)(3) nonprofit, visit the IRS Tax Exempt Organization Search website, or use an organization like America’s Charities that does the vetting for you.

It is important to note that the deduction applies to cash donations only, so it would not include tangible donations such as clothing.

What About Regular Charitable Contributions?

In past tax years, individuals who itemized their deductions were able to deduct up to 60 percent of their AGI in charitable contributions. Those who are extremely philanthropic may be interested to know that this limit has been raised to 100 percent.3

If you are feeling very generous, you could donate all of your income and deduct 100 percent of it - leaving you with a $0 tax bill.

This change gives families and individuals an opportunity to lower their AGI without needing to itemize deductions - something that many households may not typically do. More importantly, it incentivizes Americans to give charitably this season when so many people and organizations are in need. So if you're inclined and able, make a charitable donation in 2020 and let the federal government subsidize your generosity!

  1. https://www.congress.gov/bill/116th-congress/house-bill/748/text       
  2. https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2020#:~:text=For%20single%20taxpayers%20and%20married,tax%20year%202020%2C%20up%20%24300.
  3. https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

By Chris Ladd, CFP®, CCFC
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