As we near the end of the calendar year, I wanted to draw special attention to what I am guessing is a little known new $300 charitable donation tax deduction that is potentially available to all taxpayers who make a cash donation to qualifying organizations in 2020.
Update: the 2nd COVID relief bill, H.R. 133, passed in late December, re-authorized the new $300 deduction for donations for 2021 and increased the amount to a maximum deduction of $600 for “married filing jointly” households.
Buried deep within the the Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted by Congress last spring as their signature COVID relief measure, this new deduction provision allows taxpayers to deduct up to $300 in cash donations.
Weren’t charitable donations always tax deductible? Yes, but taxpayers always have had to itemize taxes to claim a charitable deduction, and after tax reform also doubled the standard deduction a few years ago, few did. In fact, the IRS estimates that about 89% of all tax filers now take the standard deduction, up from about 60% prior to tax reform.
As a former fundraiser for a non-profit organization, I accurately predicted that the 2017 tax reform bill would cause a cash crunch for 501(c)(3) charitable organizations, and it has. In 2018, the first year post tax-reform, 14.8 million returns claimed a charitable deduction, according to the IRS. This was down from 37.9 million the year prior, a 61% decline. Removing the financial incentive to donate for all but roughly 1 out of 10 taxpayers was going to result in a hit to charitable organizations. And with the economic fallout of COVID, charitable organizations are taking an even bigger hit this year, in particular.
Below are some answers to what are likely to be common questions about this new universal $300 charitable donation tax deduction for non-itemizers.
What is the Change with the New Charitable Donation Deduction?
With the new “universal deduction” for 2020, the change is that $300 of charitable cash donations can now be claimed as an “above line” deduction for taxpayers, with that deduction reducing annual gross income (AGI) and taxable income by that amount, prior to the standard deduction being applied for those who claim it. In other words, it is now in addition to the standard deduction instead of only being eligible to be claimed as a deduction if you itemize.
What is the Timeframe for the $300 Universal Tax Deduction?
Any cash donation made during the 2020 calendar year could be eligible. It is possible we could see an extension in further COVID relief measures, but nothing has been approved yet.
Is the $300 Donation Per Person or Per Filing?
The IRS has stated that the total deductible amount is $300 for individuals and “married filing jointly”, while those filing as “married filing separately” can only deduct $150 per person. The updated Publication 526 for 2020, likely released in January will have more info.
To Claim the New Tax Deduction, Does it have to be a Cash Donation?
Yes, though “cash” doesn’t mean it has to be actual dollar bills. It could also be a check, electronic funds transfer, debit card, or credit card donation. Donation of items, time, and stocks or other assets are not eligible for this deduction.
What Type of Documentation is Needed for the Deduction?
As with any charitable donation, always ask the charity for a receipt for your documentation if you are not given one automatically when making the donation.
What Charitable Organizations Qualify for this Deduction?
To see if donations to a specific organization are eligible for a tax deduction, use the IRS’s Tax Exempt Organization Search tool to determine the organizations tax exempt 501(c)(3) status.
Were there Any Other Changes to Help Charitable Organizations?
Yes, those who itemize taxes can deduct up to 100% of adjusted gross income in 2020. Post tax-reform, itemized filers could make a maximum charitable donation deduction of up to 60% of AGI on cash donations, but that increases to 100% in 2020, when made to a qualified organization. If you give more than your AGI, the excess deduction amount can roll over to next year, as previously.