As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress in March of this year, taxpayers who donate cash to operating charities can take a larger deduction against their income for federal income tax purposes for 2020.
In most years, only taxpayers who itemize their deductions can take a deduction for charitable donations, up to a maximum of 60% of their adjusted gross income (AGI). Taxpayers who take the standard deduction receive no federal income tax benefit for their charitable donations.
For 2020, a taxpayer who itemizes his or her deductions can deduct up to 100% of his or her AGI for cash donations directly to qualifying charities. Any contributions above the itemizing taxpayer’s AGI can be carried forward for up to 5 years.
In addition, a taxpayer who takes the standard deduction can claim an above-the-line deduction of up to $300 for cash contributions to operating charities.
What are the limitations of this additional tax deduction?
- It must be made to a qualified charitable organization under Section 170(b)(1)(A) of the Internal Revenue Code. The contribution cannot be made to a donor-advised fund (DAF), private foundation, or supporting organization.
- The donation must be in cash (specifically “cash, check, electronic fund transfer, payroll deduction, etc.). Donations of goods or services do not count toward the deductible portion for taxpayers who take the standard deduction and are subject to the usual 60% of AGI limit for itemizing taxpayers.
For more information, visit the IRS website at: https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions
For questions about this article, please contact an attorney in our Estate Planning Law practice area.