The higher standard deduction enacted under the Tax Cut and Jobs Act and the economic impact of the Coronavirus are expected to have a significant impact on the ability of charitable organizations in our country to do their work, and in some cases survive. To provide some help to charities, Congress [1]included an “above the line” deduction for a limited amount of charitable contributions in the CARES Act passed earlier this year. This will allow some taxpayers to deduct up to $300 of qualified donations.
Who can take advantage of this new addition to the 2020 tax return? This is available only to taxpayers who do not itemize their deductions. Carryforwards of unused charitable deductions may not be used for this purpose and any contributions in excess of $300 may not be carried forward to 2021.
The deduction is limited to $300 per return, not $300 per taxpayer. The contribution must be made to a public charity and cannot be made to a donor advised fund or a supporting organization (simply put, a charity with the mission of supporting other exempt organizations). If you have doubts about whether your contribution is made to a qualified charity, there is a link on the IRS website that identifies all charities for this purpose[1]. The donation must be in cash, not property, and you must be able to substantiate your gift if the IRS raises that issue in the event your return is reviewed.
Since this deduction reduces adjusted gross income and taxable income, it is a tax savings on most of the 90% of returns filed in which the taxpayer does not itemize deductions. Taxpayers who already owe no taxes, however, get no benefit from this deduction.
The CARES Act also provided some additional incentives for making charitable contributions for taxpayers who DO itemize. Though the $300 deduction may seem small for non-itemizers, it has the potential to provide our charitable organizations with a real lifeline this year. As we approach the end of the year, keep in mind that this could be a win-win; you save some taxes and your favorite charity gets an important financial boost.
Article Submitted by Lois Fried, CPA, CFE, CVA, ABV
