Quick reminder that as part of the stimulus bill earlier this year, congress passed into law a $300 above-the-line tax deduction on charitable contributions for those who do not itemize their deductions.
At the time, it was assumed by many that the $300 deduction is permanent – for years 2020 and all future years – but now it’s being said to be only for the year 2020, a one-off deal. So if you have any charity you’re planning on doing, it’s a good idea to do it before December 31 and lock in the tax deduction.
Another note: initially, it wasn’t clear whether couples filing jointly will be able to double up on this deduction, but it’s since become clear that the deduction is limited to $300 total, even for couples filing jointly.
I’ll paste below what we wrote back when the bill passed, incorporating the above corrections:
Since the tax overhaul in 2018, there aren’t many people who consistently itemize their tax deductions since the Standard Deduction increased greatly making it more advantageous for most people. For 2020, the standard deduction is $12,400/single or $24,800/couple.
The huge stimulus bill – the bill which gives most U.S. Residents $1,200 – also contains an added tax deduction of up to $300 on money donated to eligible charities for people who do not itemize their deductions. (Those who do itemize already get all their charity deducted on their taxes.) There’s no mention in the bill of those couples who file jointly getting $600. Some presume that joint-filers will get a $600 deduction. (Update: seems this is not the case – the deduction is limited to $300 even for those filing jointly.)
Interestingly, this change is relevant for 2020 and beyond, it’s not tied to 2020 or to the pandemic. Donations since January 1, 2020 will qualify, and the deduction will apparently continue into 2021 and beyond. This is no longer thought to be true.
Let’s say you are in the 24% federal tax bracket and you give $300 in charitable contributions to 501(c)(3) tax-exempt organizations. You’ll then be able to deduct that $300 off your taxable income, and you save $72 on your taxes. That’s on top of your standard deduction. The goal apparently is to increase charitable contributions. Regardless, if you anyway give charity, be sure to do it in a traceable way (e.g. check or credit card) and then claim the deduction on your tax return. Donations $250 or more need a receipt from the charity as well.
A few other details:
- The bill limits this $300 deduction to donations made directly to a charity, not to a donor-advised fund.
- The bill also mentions that it’s limited to cash donations, which seems to exclude things like clothing donations.
- Not clear if a donation of stock would classify as a ‘cash donation’. Update: Apparently it does not count.