Typewriter with a sheet of paper reading, "donations". (This blog post, initially published on 12/18/2020, was last edited on 3/16/2021.)

Written by Elissa Wurf, PhD, CPA, EA

Did you know that taxpayers taking the standard deduction on their 2020 returns are able to take a new tax deduction of up to $300 per taxpayer for charitable cash donations? This new tax provision was part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted by Congress earlier this year. So, taxpayers taking the standard deduction who would rather direct some of their dollars to a charity (or charities) this year — rather than to the government in the form of taxes — will be able to write off up to $300 per taxpayer in cash gifts to qualifying organizations. (Of course, they need to make their charitable cash contributions by December 31, 2020.)

 

Key Points about the Tax Deduction

Here are some key points about the deduction:

  • The deduction is only for taxpayers who are taking the standard deduction—which, since the Tax Cuts & Jobs Act of 2017, is most taxpayers.  Those who are itemizing will continue to include all charitable contributions on Schedule A.
  • For the tax year 2020, couples filing as Married Filing Jointly may deduct a total of $300 in charitable cash donations. Those who are single, head of household or widowed can also deduct a total of $300 in charitable cash donations. Married couples filing separately are permitted to deduct $150 each.
  • The donation must be made in cash. Non-Cash contributions (whether donations to Goodwill or donations of appreciated stock) will not qualify.
  • The donation must be to a 501(c)(3) qualified charitable organization, and it cannot be to a Donor Advised Fund.
  • The deduction will appear as an “Adjustment” (“Above-the-Line Deduction”) and currently appears on line 10b of the draft 1040 on the IRS website.

 

What Are “Above the Line” Deductions?

“Above the line” deductions (also known as adjustments to income) are “above” the Adjusted Gross Income (AGI) line, and are subtracted from gross income before the final AGI calculation. Standard or itemized deductions occur only after AGI has been calculated. Because “above the line” deductions reduce AGI, they are more beneficial on a dollar-for-dollar basis. This “above the line” deduction has been extended through 2021 as well.

 

What about Gift Acknowledgments for Your Donations?

One last note about the special $300 charitable contribution for those taking the standard deduction: Charitable donors should receive “contemporaneous” acknowledgment of the donation/deduction from the charitable organization to which they contribute if the contribution is over $250. But, if a contribution is up to $250, a canceled check (or proof of a donation by credit card) will suffice. So, if you want to contribute a total of $300 to one charity, but want to avoid the necessity of receiving an acknowledgement from the charity, you are permitted to make two separate donations (of say $250 and $50). If audited, having the canceled checks (or proof of donations in those amounts) would be enough. It’s the amount of the donation at one time, not the total amount given to the charity, that determines which rule applies if under audit.

At the risk of getting into the weeds….The key point is that the donation is purely charitable and that the donor is not receiving a gift in return for their contribution. Sometimes local public radio stations, for example, will give you a free NY Times subscription if you make a recurring monthly donation of at least $10/month—and your total charitable donation recorded is reduced by the cost of the subscription (and should similarly be reduced on your tax returns). A gift of de minimus value such as a pen or pencil with an organization’s logo would not be deducted, but those umbrellas/mugs/subscriptions should be subtracted from the charitable contribution.

For more information about charitable gift acknowledgment requirements, please see the IRS publication, Charitable Contributions: Substantiation and Disclosure Requirements.

If you have any questions about taxes, we invite you to contact the Financial Planning Team at Agili.