CARES Act Expands Tax Deductions for Charitable Giving
Which tax break you can take under the economic stimulus bill depends on whether you itemize or claim the standard deduction on your 2020 tax return.
After the 2017 tax reform law, which nearly doubled the standard deduction, the number of Americans claiming the itemized deduction for charitable gifts dropped sharply (as predicted). The law also triggered a decline in charitable donations by individuals (again, as predicted). But with the coronavirus crisis upon us, we're going to need help from churches, food pantries, and other charitable organizations more than ever to climb our way back to normal. To encourage more charitable giving in 2020, the recently enacted government stimulus bill (the "CARES Act") provides some additional tax relief for donors. This makes it easier to give and save at the same time.
For more ways the CARES Act can boost your financial health, see 11 Ways the Stimulus Package and Other Government Measures Could Help You in 2020.
$300 Above-the-Line Deduction (Must Take Standard Deduction)
If you take the standard deduction on your 2020 tax return (the one that you'll file in 2021), you can claim a brand new "above-the-line" deduction of up to $300 for cash donations to charity you make this year. Donations to donor advised funds and certain organizations that support charities are not deductible. Normally, you have to itemize on Schedule A to get a tax break for charitable donations. In this case, though, it's the other way around—if you itemize, you can't take this new deduction.
Not sure if you'll claim the standard deduction? Here are the amounts for your 2020 tax return:
2020 Standard Deduction Amounts
|Filing Status||Standard Deduction|
|Single; Married Filing Separately||$12,400|
|Married Filing Jointly||$24,800|
|Head of Household||$18,650|
Taxpayers who are at least 65 years old or blind can claim an additional standard deduction of $1,300 ($1,650 if using the single or head of household filing status). For anyone who is both 65 and blind, the additional deduction amount is doubled.
60% of AGI Limit Waived (Must Itemize)
If you itemize on Schedule A of your tax return, you can claim a deduction for your charitable donations. However, the amount you can deduct for cash contributions is generally limited to 60% of your adjusted gross income (AGI). Any cash donations over that amount can be carried over for up to five years and deducted later.
The CARES Act lifts the 60% of AGI limit for cash donations made in 2020 (although there's still a 100% of AGI limit on all charitable contributions). That means itemizers can deduct more of their charitable cash contributions this year, which will hopefully boost charitable giving. As with the new above-the-line deduction, donations to donor advised funds and supporting organizations don't count.