Here’s some good news for generous taxpayers who will not be itemizing deductions on this year’s federal tax returns. They will be able to deduct as much as $300 in cash donations to their favorite charities with ease on their 2020 returns. One important note: This new deduction is limited to cash donations; gifts of household goods, clothing, stocks, etc., don’t qualify.
This is a change from past years. Charitable contributions were one of several types of spending that were grouped together as “itemized deductions.” The entire group had to reach a certain level before it made sense to claim the deduction. Most people took the simpler “standard deduction” instead. In fact, the Internal Revenue Service figures that 87 percent of taxpayers went with standard deduction in 2018, the latest figures available.
Congress placed the new tax break in its coronavirus relief package (the CARES Act) earlier this year. “So, if someone makes a cash donation to a qualifying charity before the end of 2020, they can get a deduction of up to $300,” said Edward T. Killen, the IRS commissioner for tax-exempt entities. “It will be easy to report when they (taxpayers) fill out their Form 1040 in 2021,” he promised in an announcement.
The new deduction is limited to $300 per return. From the taxpayer’s standpoint, it lowers taxable income, leading to savings of taxes that are due. Of course, some taxpayers who have larger charitable deductions still can benefit by itemizing as in the past. However, they cannot double-dip by claiming the $300 tax break as well.
One other objective of Congress, besides taxpayer relief, was to encourage more donations to tax-exempt organizations during the crisis caused by COVID-19.
Currently, the tax break for charitable contributions is available only for the 2020 tax year. Donations must be made by Dec. 31, the IRS noted. For more information, check IRS Publication 526 dealing with charitable contributions.
Minnesotans have been able to subtract some charitable contributions without itemizing on their state income tax returns in previous years, but that deduction kicked in after $500 worth of donations.
With tax season on the horizon, contact EricJohn Ltd. owner Eric Buechler for expert advice about individual or business tax returns. He is an enrolled agent recognized by the IRS.