Donating to Your Favorite Charities This Holiday Season? Keep This CARES Act Tax Benefit in Mind

As Americans, we love giving back. In 2017 alone, we shelled out $410 billion in charitable donations - accounting for 2.1 percent of GDP.¹ With the 2020 holiday season officially upon us, it’s no surprise that our giving efforts are likely ramping up. And while you may regard donating to charities an essential part of your core values, it can also be an important, strategic play in lowering your tax obligation.

This year, charitable contributions can count even more toward lowering tax bills, especially for the 90% of taxpayers who do not itemize their deductions, but take the standard deduction instead.  Thanks to the CARES Act, which passed in late March,  2020 amidst the coronavirus pandemic, your giving could stretch even further this tax season.

How Is This Year’s Charitable Deduction Different?

Thanks to the CARES Act,  tax filers will be allowed to take an "above-the-line" charitable giving deduction for cash donations up to a $300 limit.²   Since the deduction is "above the line", it has the effect of lowering both adjusted gross income (AGI) and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations.  This is significant because, typically,  you would have to itemize deductions in order to deduct charitable donations from your taxes.  

With changes introduced through the CARES Act, this "above-the-line" deduction is available to those who choose to take the standard deduction. As a reminder, the standard deduction for 2020 is $12,400 for single and married filing separately, $24,800 for married filing jointly and $18,650 for head of households.³ 

It’s important to note that the $300 limit is per household, whether you are filing single or jointly.  According to the IRS, cash donations can include those made by check, credit card or debit card, but not securities, household items or other property.²   As with any charitable donation, it will be important for you to keep your cancelled checks and credit card receipts with your tax papers.   

Who Benefits from This Change?

This CARES Act deduction is not available for those who itemize their deductions, it’s only for those who are using the standard deduction on their 2020 tax returns.

In tax-year 2018, the most recent year for which complete figures are available, more than 134 million taxpayers claimed the standard deduction, just over 87% of all filers, according to the IRS.² 

What Donations Count Toward the CARES Act Deduction?

Just as any other charitable contribution deducted from your taxes, eligible donations must be made to qualified 501(c)(3) organizations or any other qualified organization as outlined in section 170(c) of the Internal Revenue Code.²  

What About Regular Charitable Contributions?

In the past, those who itemize their deductions were able to deduct up to 60 percent of their AGI in charitable contributions. Those who are extremely philanthropic may be interested to know that this limit has been raised under the CARES Act to 100 percent of AGI for cash donations made in 2020.⁴

Whether you itemize your deductions or take the standard deduction in 2020, the CARES Act provides an extra incentive to give charitably this season, which is especially important at a time when so many people and organizations are in need.