COVID-19 has been difficult on everyone, including nonprofits. As many businesses and families have found themselves struggling financially to make ends meet, charitable organizations have seen a decline in the amount of annual giving from its members. In response, Congress has enacted some favorable changes to the tax code that are meant to encourage charitable giving during these hard times
In March of this year, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act. Included within this bill is a provision which allows individual taxpayers to deduct up to $300 “above the line” for any cash donations made to charities during the 2020 tax year. Before this, the general rule of thumb was that you could only deduct charitable contributions on your personal taxes if you could itemize your deductions.
Starting in 2018, many taxpayers found themselves in the unfortunate situation of no longer being able to deduct their charitable contributions because the standard deduction was greatly increased from previous levels as a result of the 2018 Tax Cuts and Jobs Act. What this boiled down to is that if you didn’t itemize your deductions, you were basically out of luck as far as deducting any donations you made to charity.
With this new added provision, taxpayers will be able to deduct $300 as an adjustment to their gross income. This means that all taxpayers, regardless of whether they itemize their deductions, will be able to deduct up to $300 donated to qualified charitable organizations in 2020. It’s important to note, this applies only to cash donations. Non-cash donations will still be subject to the existing rules, and not counted as part of the universal $300 deduction. Note that if you claim the standard deduction on your taxes, the $300 is in addition to the standard deduction. If, however, you are able to itemize your deductions, you cannot claim the $300 above the line, but will continue to deduct this amount as an itemized deduction. Also note that the $300 limit is per tax filer, and not per person. So if you filed your taxes as single, or as married filing jointly for instance, the maximum amount that could be claimed in both instances would be $300.
Contributed by Michael P. Thornton, CPA
Tax Manager, Vrakas CPAs + Advisors