Many of us have recently switched from itemizing deductions on our federal returns to taking the standard deduction. This is due to the increased standard deduction that was part of the Tax Cuts & Jobs Act, which started with our 2018 tax returns.
For those of you who haven’t been itemizing –
or who haven’t been reporting your charitable donations –
or who haven’t been making charitable donations since you couldn’t deduct them -
we have big news for 2020.
A component of the CARES Act calls for a new “above the line” deduction for charitable giving on the 2020 tax returns (which will be prepared and filed in 2021).
This means taxpayers who take the standard deduction can deduct up to $300 of charitable donations made in 2020.
Keep in mind:
- Only cash donations can be deducted – not donations of goods;
- Donations must be to non-profit organizations – not private foundations, support organizations or donor advised funds;
- The donations must be substantiated - make sure you have receipts for any donations you claim. The penalty for claiming donations you can’t prove is much higher (50%) for this deduction.
If you do itemize deductions on your federal return, your charitable donations will be deducted on your Schedule A, as usual. This new deduction won’t affect you. But the deductible limit has been eliminated. So, instead of deducting charitable donations up to 60% of your Adjusted Gross Income (AGI), you can deduct up to 100% of your AGI on your 2020 returns, and if you donate more than your AGI, you can carry that forward five years.
The bottom line is this: 2020 has been a tough year for everyone. If you’ve given to non-profit organizations this year, save the receipts. If you want to give to non-profits but haven’t yet, now you have a great incentive to do so. Save the receipts. You’ll be glad you did come tax time next year!