CARES Act Expands Savings on Charitable Donations

Needless to say, the past year has been a difficult one.

A global pandemic, natural disasters, economic instability, and civil unrest have stretched most of us beyond our breaking points. 

As a result, organizations that were founded to help others going through difficult times need charitable contributions now more than ever.

For example, food banks and pantries across the country have seen a significant rise in the number of people that they serve. Likewise, layoffs and economic uncertainty are causing more and more families to turn to these essential services for support. 

Operations and food sourcing for these organizations are often funded from charitable contributions, however. Did you know that the CARES Act allows you to give money to these organizations… and save money at the same time?!?!

If your financial situation allows you to give money to charitable organizations in 2020, the government is providing additional incentives that can help ease your tax burden.

In short: you’re providing necessary resources to organizations that help those in need AND receiving a tax deduction for your generosity. It’s a win-win opportunity for everyone involved!

Charitable Contribution Deductions  

Money donated to charities can reduce the amount of taxable income you claim during tax time. This, of course, can save you money or even qualify you for a lower tax bracket depending on how much you donate.

Your donations must be made to a qualifying organization. The organization needs to be tax-exempt as defined by section 170(c) of the Internal Revenue Code. According to the IRS website, some qualifying organizations include:

• A state or national possession made exclusively for public purposes
• A foundation, fund, or community chest, organized/created in the United States operating exclusively for charitable, educational, scientific, anti-cruelty, food security, religious, or literary purposes 
• Religious organizations like churches or synagogues.
• War veterans’ organizations
• Domestic fraternal societies like lodges when the contribution is used exclusively for charity

If you have a specific charity in mind, you can use the IRS Tax Exempt Organization Search tool to make sure it qualifies. Also, before you donate, you may want to ask the organization how much of your contribution will be tax-deductible. 

Remember to Document Your Contributions

A good rule of thumb with anything related to taxes: Always leave a paper trail. Don’t skip this crucial step even if you are only donating a small amount. After all, smaller donations that you give throughout the year can add up. Be sure to save bank statements, canceled checks, and receipts from organizations. If you contribute with an automatic deduction from your paycheck, keep copies of your pay stubs or W-2 statements. 

If you are ever subject to an audit, you’ll want to make sure you have proof of everything you claim when filing your taxes.

The CARES Act & Your Charitable Donation Deductions

The CARES Act is the first time the government has passed a giving incentive in response to a national emergency.

What is the CARES Act?

In the wake of the COVID-19 pandemic, the President and Congress signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This $2 trillion economic stimulus package was created to provide immediate relief for nonprofits struggling with the increased demand caused by the pandemic. 

How Does the CARES Act Affect Charitable Contributions?

The CARES Act affects your charitable contributions depending on how you typically file your taxes. 

Do you take the Standard Deduction?

For many taxpayers, the standard deduction is the easiest, fastest, and cheapest way to file your taxes. Instead of sifting through receipts and other paperwork, you choose a standard deduction. In some cases, this could give you a better tax return than itemizing all your deductions.
 

For the 2020 tax year, standard deductions are:

• $12,400 for a single person
• $24,800 for married people filing jointly
• $12,400 for married people filing separately
• $18,650 for those filing as head of a household 

So, ordinarily, when you take the standard deduction, your charitable contributions are included in (not added to) this amount. 

The CARES Act, however, allows for a slight change. In 2020, you can deduct up to $300 cash for donations without itemizing. This amount would go toward reducing your taxable income. 

In 2021, the deduction changes to $300 per person—instead of per tax return. So a married couple filing jointly can add up to $600 in donations to their standard deduction.

If you gave more than $300 in charitable donations, but have a pretty straightforward tax return, you probably want to stick with the standard deduction. The extra costs and time associated with itemizing your return may not be worth it.

Do You Typically Itemize Your Tax Returns?

For those who are used to itemizing their tax returns, the CARES Act offers a temporary suspension of limits on charitable contributions. 

Prior to the CARES Act, a certain percentage of your adjusted gross income (AGI) could be deducted for charitable donations. AGI is your gross income minus certain payments like student loan interest or contributions to a traditional retirement account. 

In general, the deduction was up to 60% of your AGI. The CARES Act now allows you to deduct up to 100% of your AGI on itemized tax returns. In addition, the percentage increases to 25% for corporations—up from 10% in previous years.

The new deduction limits only apply to cash gifts going to a public charity, however. If you contribute to your own private foundation, you’ll have to stick with the old deduction rules.

A Couple More Things That You Should Know…

If your assets and financial situation allow you to give more than 100% of your AGI, the excess amount can be used for next year’s returns.

The non-cash property you donate does not qualify for the CARES Act. Of course, you can still donate property items, but it is subject to normal, pre-CARES Act limits. 

Contributions must be paid before the close of the tax year to be deductible. This can include cash, accrual, or property donations. 

This is The Time To Give

The past year has been unlike anything in recent history. Many people that lived “normal” lives prior to 2020 are struggling. If you have the ability to give even a small amount, you are providing an opportunity for organizations to reach out to those in need. 

And while your contribution may give you a little help when it comes to tax time, it can be making a major impact on someone else’s life.

Need Help Deducting Your Charitable Donations Correctly?

It’s been a chaotic year. We’re all struggling to regain our stride. As you start preparing your tax return, you’ll want to make sure that you’ve kept up with all the recent changes in the tax code.

Have other things on your mind?

Then let us give you a hand. Steven Lissner & Company is a team of dedicated Certified Public Accounting professionals who are ready to make sure that you get the most out of your tax return (or any other financial service).

We firmly believe professionalism, responsiveness, and quality have earned us the trust and loyalty of our clients. 

You’re working hard to make a living. We’re going to work hard to support you. Give us a call at (973) 917-4080 to see how we can help.