When the 2017 Tax Cuts and Jobs Act (TCJA) was passed it changed the rules about deductions for charitable giving. Under current law the only way to deduct charitable gifts is to itemize on your tax return. Because of that, giving to charities has fallen substantially.
In 2018 almost 32 million Americans made charitable donations. In 2019 that number dropped to just over 11 million. In dollars, that’s a decrease of $54 billion. Charities have been frustrated, trying to figure out how to maintain the same level of service with less money. Now, with an economy virtually shut down by the coronavirus, charities are needed more than ever.
But there’s some good news. Inside the Coronavirus Aid, Relief and Economic Security Act (CARE) recently passed to stimulate the economy, there’s a provision incentivizing Americans to make charitable donations again. In 2020, filers who take the standard deduction will be allowed an above-the-line charitable tax deduction of up to $300 in cash contributions made to a nonprofit charity, which will reduce the gross amount of the taxpayer’s taxable income.
If you give $300 to charity you would get the $300 tax break in addition to the standard deduction. If you’re in the 10% tax bracket it would be worth $30. If you’re in the 37% tax bracket it would save you $111. Since the deduction is above-the-line, the deduction reduces your adjust gross income which might mean you qualify for other tax breaks.
Whether the change is permanent or temporary is in question. The summary of the CARE Act says the $300 tax break is for 2020 only. But the bill passed and signed into law says the break applies to tax years beginning in 2020. We’ll have to see what happens when the bureaucrats try to define the language.
The CARE Act also includes a provision that eliminates the percent of AGI limits for individuals and corporations. For individuals, the 50% of adjusted gross income limitation is suspended for 2020. For corporations, the 10% limitation is increased to 25% of taxable income.
Even if only for one year, the charitable giving incentive allows taxpayers credit for their donation. Even more importantly, it’s sure to help those who lend a helping hand.
