As Americans, we love giving back. In 2017 alone, we shelled out $410.02 billion in charitable donations - accounting for 2.1 percent of the GDP.1 With the 2020 holiday season officially upon us, it’s no surprise that our giving efforts are likely ramping up. And while donating to charities may be an integral component of your core values, it can also help lower your taxes.
This year, charitable contributions can count even more toward lowering tax bills for some. Thanks to the CARES Act, which passed in late March 2020 during the coronavirus pandemic, your giving could stretch even further this tax season.
How Is This Year’s Charitable Contribution Exemption Different?
Under the CARES Act, filers will be allowed to take a $300 above-the-line charitable giving deduction.2 This is significant because, typically, you would have to itemize deductions in order to deduct charitable donations from your taxes.
With changes introduced through the CARES Act, this above-the-line deduction can be used for those who choose to take the standard deduction. As a reminder, the standard deduction for 2020 is $12,400 for single and married filing separately, $24,800 for married filing jointly and $18,650 for head of households.3
It’s important to note that the $300 limit is per filing unit, whether your filing single or jointly.
Who Does This Change Benefit?
This CARES Act exemption is not available for those who itemize their deductions. It’s only for those who are using the standard deduction on their 2020 tax returns.
This is significant because, historically, anyone taking a standard deduction has not been able to reduce their adjusted gross income (AGI) by claiming charitable contributions.
The Tax Cuts and Jobs Act of 2017 roughly doubled the size of the standard deduction, making it attractive for most taxpayers compared to itemizing deductions.. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify for this new $300 charitable giving tax deduction.
What Donations Count Toward the CARES Act Deduction?
Just as any other charitable contribution deducted from your taxes, eligible donations must be made to qualified 501(c)(3) organizations or any other qualified organization as outlined in section 170(c) of the Internal Revenue Code.2
What About Itemizers?
In the past, those who itemized their deductions were able to deduct up to 60 percent of their AGI (adjusted gross income) in charitable contributions. Those who are extremely philanthropic may be interested to know that for 2020 this limit has been raised to 100 percent.4
The CARES Act incentivizes Americans at all income levels to give charitably this season, which is especially important at a time when so many people and organizations are in need.
This content is developed from sources believed to be providing accurate information, and provided by Sapient Investments. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.