Can you take advantage of 2020 CARES Act tax benefits?

Have you been keeping up on tax policy for charitable giving? Within the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act lies hard to find, this year only, tax benefits for individual charitable donations. And let’s face it, the IRS doesn’t give us many of these!

For the first time there are tax benefits for individuals that don’t Itemize on their return

Prior to the 2020 CARES Act, only taxpayers that Itemized deductions (versus choosing the Standard Deduction) on their tax returns were able to get a tax reduction from a charitable donation. However, only about 14% of all national taxpayers now itemize on their return. Therefore, most taxpayers don’t didn’t have a tax-reducing incentive to contribute to a charity. 

The new 2020 CARES Act policy opens charitable tax deductions for everyone! For the first time, individuals can deduct up to $300 for cash donations to qualified charities even if they don’t Itemize on their returns. 

While $300 isn’t a lot of money (many lawmakers wanted more), the benefit here is that the 2020 CARES Act allows this donation to be an above-the-line deduction. This means a deduction that is subtracted from gross income to determine adjusted gross income. Above-the-line deductions are preferred over below-the-line deductions since it’s like you simply earned less money (and owe less in taxes) from the IRS’s perspective.

For those that do Itemize there are now new benefits:

Prior to 2020, if you did Itemize on your tax return, the total amount deductible was up to 60% of your adjusted gross income. This amount was limited down to 20%, depending on the type of property given and also the type of organization you give it to (for example stock versus artwork and/or a qualified charity versus private foundation).

But for now, per the 2020 CARES Act, if your donation is given in cash (only), the IRS allows a 100% deduction from adjusted gross income.

Here’s a summary of the 2020 IRS policy

Additional considerations include:

1. For non-cash contributions, the fair market value of an asset can usually be deducted (therefore minimizing your capital gains taxation).
2. Donations must be made to a qualified 503 (c)(3) charity or donor advised fund for the full deduction % amounts above.
3. Bunching of donations can help you increase Itemized amounts and therefore exceed the Standard Deduction thresholds.

To make sure that you’re making the most out of this new policy and any other opportunities lurking in the text of tax law, we recommend reading up on the IRS policy on charitable giving and speaking to your financial or tax advisor.

The end-of-year deadline is approaching fast!

Calendar year 2020 is closing out soon. Now, more than ever, there is likely to be a charity somewhere that would very much appreciate it if we all would take advantage of this one-time tax reducing strategy for year’s end!