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What to Know About the CARES Act $300 Charitable Contribution Deduction for 2020

What to Know About the CARES Act $300 Charitable Contribution Deduction for 2020

When the Tax Cuts and Jobs Act tax reform law passed in 2018, it meant that millions of Americans stopped claiming tax deductions for charitable contributions. That's because the new law doubled the standard deduction for both individuals and for those filing jointly, making far fewer people eligible for the itemized deductions they'd previously taken. Whether the loss of the deduction resulted in less charitable giving is not yet clear, but many taxpayers and charities lamented the deduction's loss.

In one silver lining to the cloud caused by COVID-19, when Congress passed the CARES Act last spring, they restored a small portion of the original deduction, allowing a "partial above the line deduction" for up to $300 in donations, even for those who take the standard deduction.

The tax break is available to those who take the standard deduction of $12,400 for a single filer or $24,800 for married people filing jointly for tax year 2020. If they make a charitable contribution during the tax year, they can claim up to a $300 deduction as long as the contribution was made directly and was made in cash (including a credit card or check) rather than in the form of assets or stocks.

Impact on Charitable Donation Deductions

When the tax reform bill doubled the standard deduction that taxpayers could take, it effectively eliminated the impetus to itemize, and charitable deductions were one of the most popular itemized deductions applied to tax filings. An IRS analysis of the impact found that the number of returns claiming itemized deductions in 2018 fell from 46.9 million in 2017 to just 17.5 million in 2018, and zeroing in on the difference in charitable deductions revealed a drop from 37.9 million in 2017 to 14.8 million in 2018.

People take tax deductions to reduce the income level that relates to their federal tax bracket, and the associated tax rate that they are required to pay. The more money you earn, the more a tax deduction is worth because the percentage of income you are required to pay in taxes increases.

To understand the way that income tax relates to the amount of taxes owed, consult the chart below.

Keep All Receipts

Being able to deduct charitable contributions is an added benefit to the many positive aspects of giving. To make sure that you can apply that benefit to your taxes, retain all records of your contribution. Most charities will provide a written receipt in the form of an email acknowledging your contribution and thanking you for your donation. This can be used to prove that you've made a contribution, so hold onto it for when you file your tax return. 

If you have any questions about the CARES Act charitable contribution deduction or any other aspect of your taxes, contact your tax professional.

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Spencer Wilson

Spencer Wilson

Spencer Wilson, EA is a tax preparer based in Long Beach, CA. Spencer Wilson Financial Management Services has been serving the Greater Los Angeles Area and Orange County since 2004. <br /> We began in the heart of Naples in Long Beach and we continue to work hard offering tax preparation and planning, business accounting and bookkeeping and payroll services . <br /> We have helped many different people and businesses succeed financially and take control over their finances.

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