An Unusual Opportunity For a Tax Deduction
Entering 2021 suggests that income tax filing is not that far behind. Congressional action increased the standard deduction driving many people to no longer itemize their deductions. As a result, and depending on the state tax regime where you live, you may now be unable to deduct some of your charitable contributions and get the standard deduction. The CARES Act enacted March 27, 2020 has a little relief. Read on.
Universal Charitable Deduction for Cash Gifts
Individuals will be able to deduct $300 above-the-line, meaning this is an additional eligible deduction. This universal charitable deduction will enable a taxpayer who takes the standard deduction to also benefit from his or her charitable gifts made in 2020. This deduction applies only to cash gifts to qualified charities (not donor-advised funds), not gifts of non-cash items such as stock or other property. Cash or check is an acceptable vehicle for these donations.
The standard deduction for 2020 is $12,400 for individuals and $24,800 for married filing jointly tax filers.
For comparison, consider that, according to the IRS, in tax year 2018 roughly 17.5 million returns claimed itemized deductions, but in tax year 2017 more than 46 million filers did so. Just looking at charitable deductions, for 2018 14.8 million returns claimed charitable deductions, while in 2017 more than nearly 38 million did so.
For 2021 the charitable deduction in addition to standard deduction was enhanced a bit: for those filing as married filing jointly, enabling married couples to deduct up to $600, (up to $300 each), for cash charitable contributions.
100% Charitable Deduction Limit
The new law also lifts the cap on annual contributions for those who do itemize. The usual deduction limit for cash gifts to public charities is 60% of adjusted gross income (AGI). For 2020, cash gifts to public charities, excluding donor-advised funds and supporting organizations, are deductible up to 100% of AGI. The gift may be for any charitable purpose and is not limited to gifts for coronavirus relief. Further, if so inclined one can wipe out the entire AGI by making charitable donations.