2020 Tax Return: Changes to the Charitable Deduction and a $300 Charitable Deduction Even if you Don’t Itemize

The CARES Act, enacted last spring, includes several temporary tax changes to encourage charitable giving.  Two are designed to help those individuals who give to charity in 2020.

New deduction for people who don’t itemize

With fewer itemized deductions available since 2018, more taxpayers file using the standard deduction (for 2020 – $12,400 for single taxpayer, $24,800 for a married couple filing jointly). Nearly nine in ten taxpayers now take the standard deduction (IRS IR-2020-278, December 18, 2020). This means those using the standard deduction lose the ability to deduct their charitable contributions. However, for their 2020 taxes, the CARES Act permits filers using the standard deduction to claim a limited charitable deduction on federal income tax returns for cash contributions made to qualifying charitable organizations.

Under this change, there may be an “above-the-line” deduction for individuals of up to $300 for cash contributions made to qualifying charities during 2020. (The maximum above-the-line deduction is $150 for married individuals filing separate returns). Those taking this deduction will be able to deduct $300 from their Gross Income to arrive at the Adjusted Gross Income (AGI), much like adding it to the standard deduction itself.

Though cash contributions to most charitable organizations qualify, those made either to supporting organizations or to establish or maintain a donor advised fund, do not. Charitable deduction carry forwards do not qualify. Cash contributions to charitable remainder trusts will not qualify.

Cash contributions do include those made by check, credit card or debit card but do not include the value of volunteer services, securities, household items or other property.

Itemizers will have a benefit for 2020 with higher percentage of AGI available

If you itemize you may be able to claim a deduction for charitable contributions made to qualifying charitable organizations. The deduction is usually limited to between 20% and 60% of your Adjusted Gross Income, depending on the type of gift to charity and the charity itself.  The part that is not allowed to be used in the current year will be “carried forward” for use on the future tax returns for up to 5 years.  

The CARES Act changes those AGI limitations for 2020. For this year, you may be able to deduct up to 100% of your AGI, for qualified charitable cash contributions.  The IRS will consider the allowance on a contribution-by-contribution basis.

Cash contributions to most charitable organizations qualify, but those made either to supporting organizations or to establish or maintain a donor-advised fund do not. Charitable deduction carryforwards do not qualify. Cash contributions to charitable remainder trusts will not qualify either (IRS IR-2020-278, December 18, 2020).

Other rules will apply so, as always, check with your tax professional.

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