Taking a deduction for charitable contributions on your personal income tax return has become easier for the 2020 tax year.
As a result of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed by Congress to address the ongoing coronavirus pandemic, there are two changes in the treatment of charitable giving that will result in tax benefits for the upcoming 2020 filing season. First, the CARES Act allows taxpayers to take an above-the-line deduction for cash contributions made to qualifying charitable organizations. This above-the-line deduction is limited to $300 for single filers. While the CARES Act does not specifically address the limit for taxpayers who are married filing jointly, the assumption is that the limit for joint filers is $600.
Second, for taxpayers who itemize their deductions, the CARES Acts temporarily removes the cap for cash contributions made to qualified charities previously limited to 60% of a taxpayer’s adjusted gross income (AGI), and allows these taxpayers to deduct contribution amounts up to 100% of their AGI. It is important to note that the CARES Act only provides these tax benefits for donations made to 501(c)(3) public charities. Donations to other types of not-for-profit organizations are still limited according to the tax provisions in the 2017 Tax Cuts and Jobs Act (TCJA). While the new $300 above-the-line deduction is a permanent change, the elimination of the 60% AGI limitation for filers who itemize deductions only applies for the 2020 tax year. Beginning January 1, 2021, the charitable deduction AGI limitation will revert back to the 60% limitation, which was increased from 50% by the TCJA.
The TCJA inadvertently decreased the incentive to make charitable contributions when it increased the standard deduction, thus eliminating a tax benefit for many small charitable donations. The provisions of the CARES Act increasing the benefits of charitable giving was an attempt by Congress to address the decrease in charitable giving and provide charitable organizations with additional support to help offset the economic effects the Coronavirus pandemic has had on the not-for-profit industry.
For those that wish to take advantage of the temporary charitable deduction limitations provided by the CARES Act, qualifying donations must be made by December 31, 2020. For additional information or questions please contact your HBK tax advisor.