With passage of the Coronavirus Aid, Relief, and Economic Security Act, or “CARES” for short, earlier this year, several tax provisions for Tax Year 2020 were modified. You have probably read or heard about some changes, such as elimination of Required Minimum Distributions (RMDs) from retirement plans for this year only. We have studied the CARES Act since it was announced, but only recently did one interesting provision come to light.
Americans are very generous people, with millions of Americans making annual contributions to qualified charities. The U.S. Income Tax Code has always encouraged charitable giving by including donations in the list of available Itemized Deductions. Taxpayers only receive these deductions if they choose itemizing over taking the Standard Deduction.
Following passage of the Tax Cuts and Jobs Act of 2017 (TCJA), many former itemizers no longer received any additional benefit from itemizing, and opted instead to use the new, larger Standard Deduction. Charitable donations no longer played a direct role in further reducing Taxable Income.
Recognizing this fact, and considering the economic pain being experienced this year by so many taxpayers, Congress added a provision that will hopefully improve the plight of America’s charities. For this year only (so far, anyway) any taxpayer is allowed to deduct the first $300 of qualified charitable donations made during the tax year. The limit (again, so far) is $300 regardless of filing status; single or joint, itemizing deductions or taking the Standard Deduction.
Because this provision has a direct positive effect on your actual tax bill, we would encourage all taxpayers to make their fist charitable contributions, up to the $300 limit, from personal (taxable) accounts. Keep good records and get receipts to document your generosity. If you need to know whether a charity is qualified, check IRS Publication 590, which is available online at irs.gov.
We should note that qualified donations do not fail to help your tax situation. Included in the larger Standard Deduction is a consideration for Charitable Giving; it is simply not split out on Form 1040. If your generosity is above the estimated average giving, you simply change to itemized deductions and receive a tax break for the excess.
Van Wie Financial is engaged in all areas of Personal Financial Planning, including Tax Planning, but is not qualified to prepare tax returns or to give tax advice. Always consult with your tax professional for verification before proceeding with actions that may affect your personal tax situation.
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