Changes to Deduction for Charitable Contributions
Of the many changes to the tax laws this year, there’s one change to the law that can save individuals up to around $100 on their taxes, and almost everyone can take advantage of it!
Charitable contributions are an itemized deduction. As a quick recap, individuals take a deduction (a subtracted amount) from their taxes by either claiming the standard deduction ($12,400 for most individuals for the 2020 tax year) or by itemizing (meaning you list out all your deductions). You can take whichever is the more advantageous. So, if you contribute $1,000 to charity and have no other deductions, you would take the standard deduction. Even if you were generous and donated $10,000 to charity, the standard deduction would still be more advantageous. As a result, most people (9 out of 10 people in 2019 took the standard deduction instead of itemizing) don’t get a tax deduction for charitable giving.
That’s about to change!
For the 2020 tax year, all individuals, regardless of whether they itemize or take the standard deduction can deduct up to $300 for cash charitable contributions! The donations have to be in cash, have to have been made in 2020, and must be to a qualifying charitable organization. Unsure if the charity you donated is qualified? Here’s the IRS database of qualifying charitable organizations: https://apps.irs.gov/app/eos/.
The take-away: hold on to those receipts from the charitable organizations that you donated to in 2020 when they come in the mail!
There was a second change too that will benefit people who are particularly generous. In the past, you could only deduct up to 60% of your income for charitable contributions. As an example, if you made $100,000 and donated $70,000 in cash to a qualifying organization, you could only take a deduction of up to $60,000 (60% of $100,000), and the extra $10,000 could be carried forward as a tax deduction in a future year.
This has also changed!
Individuals may now deduct up to 100% of their income for charitable donations in 2020! Note that this only applies to cash contributions, and there are still limits in place for contributions of physical items, stocks, and property.
If you want to learn more, I’ve included two links below to the IRS website with further information on these changes. You’re also always welcome to schedule a free consultation with me, and I’d be happy to answer your questions on this topic!
Sources:
$300 deduction: Special $300 tax deduction helps most people give to charity this year – even if they don't itemize
Increase of AGI limitation to 100%: https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions#:~:text=You%20may%20deduct%20charitable%20contributions,limitations%20apply%20in%20some%20cases.
