Over half of all Americans give money to charity, but many have not been able to take a tax deduction since a 2017 change in the tax laws. However, with the new CARES Act, most American taxpayers will be able to take a tax deduction for charitable giving again. The details are as follows:
Section 2204 of the CARES Act allows eligible individual taxpayers to deduct up to $300 of qualified charitable contributions made during the taxable year.
Only cash donations qualify, so donations such as clothing, stocks, automobiles, or other items cannot be counted toward this. This is also only for taxpayers who take the standard deduction, as the majority do. Those who itemize their deductions cannot take this new $300 deduction.
Gifts to a donor-advised-fund account or to 509(a)(3) supporting organizations do not qualify.
No special form will be needed, so taxpayers should be able to claim the deduction directly on their 1040 return and should use the receipt from the charity as proof of the donation. This new deduction applies to 2020 federal tax returns that will be filed in 2021 but does not apply to 2019 tax returns.
The IRS has not yet been clear regarding whether or not married couples filing a join return will be able to claim $600 in deductions.
While it is a relatively small tax break, it’s still worth claiming. For instance, if you are a single taxpayer in the 22% tax bracket and you gave at least $300 in cash to a public charity in 2020, this new deduction will save you $66. If you don’t need this extra money, you can always give it to charity.
Here is the text of Section 2204 of the CARES Act:
SEC. 2204. ALLOWANCE OF PARTIAL ABOVE THE LINE DEDUCTION
FOR CHARITABLE CONTRIBUTIONS.
(a) IN GENERAL.—Section 62(a) of the Internal Revenue Code
of 1986 is amended by inserting after paragraph (21) the following
‘‘(22) CHARITABLE CONTRIBUTIONS.—In the case of taxable
years beginning in 2020, the amount (not to exceed $300)
of qualified charitable contributions made by an eligible individual
during the taxable year.’’.
(b) DEFINITIONS.—Section 62 of such Code is amended by adding
at the end the following new subsection:
‘‘(f) DEFINITIONS RELATING TO QUALIFIED CHARITABLE CONTRIBUTIONS.—
For purposes of subsection (a)(22)—
‘‘(1) ELIGIBLE INDIVIDUAL.—The term ‘eligible individual’
means any individual who does not elect to itemize deductions.
‘‘(2) QUALIFIED CHARITABLE CONTRIBUTIONS.—The term
‘qualified charitable contribution’ means a charitable contribution
(as defined in section 170(c))—
‘‘(A) which is made in cash,
‘‘(B) for which a deduction is allowable under section
170 (determined without regard to subsection (b) thereof),
‘‘(C) which is—
‘‘(i) made to an organization described in section
‘‘(I) to an organization described in section
‘‘(II) for the establishment of a new, or maintenance
of an existing, donor advised fund (as
defined in section 4966(d)(2)).
Such term shall not include any amount which is
treated as a charitable contribution made in such taxable
year by reason of subsection (b)(1)(G)(ii) or (d)(1)
of section 170.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 2019.