This has been a hard year for a lot of people. The Covid-19 pandemic has affected great portions of our country, and many people are still struggling. Unemployment is high, some industries are basically shuttered, hopefully only temporarily, and a lot of people got very sick and/or lost loved ones over the last ten months.
Back in March, Congress passed the CARES Act. This is the act that provided the direct $1,200 stimulus and the Payroll Protection Program, which got a lot of media attention. This act also provided an increased charitable contribution deduction for your future tax returns. This has not been as widely discussed.
After the passing of the Tax Cuts and Jobs Act (TCJA), the new tax law enacted early in President Trump's presidency, charitable contribution deductions were still allowed on individual income tax returns, but the increased standard deduction meant that most people no longer claimed any charitable contributions, as it was no longer beneficial to itemize their deductions.
The CARES Act, however, authorizes a deduction of up to $300 in qualified charitable contributions made to qualified charitable organizations, even if you claim the standard deduction. This is a real benefit to you if you are one of those people who gives money to charity, yet does not have enough other deductions to make it beneficial to itemize.
There are some caveats, of course. First, the up to $300 must be made in cash. When the IRS says cash here, they really mean that it must not be property, but actual money. So, cash, check, credit card, etc. can be used for this new deduction. Second, you must be able to substantiate the deduction. The IRS requires that, in order to claim a charitable contribution of $250 or more, you must get a written acknowledgment from the charitable organization that lists, at a minimum, the date the contribution was made and the amount of the contribution. It is best practice to have records of any contributions that you make for tax purposes (and to keep the records for at least 3 years after the due date or actual filing date of the return). Third, the organization must be a qualified charitable organization. This means that the organization you donate to is a nonprofit organization that qualifies for tax-exempt status according to the U.S. Treasury. This would include things like religious organizations (churches, synagogues, mosques, etc.), charities (Goodwill, United Way, Salvation Army, etc.), nonprofit schools and hospitals, volunteer fire departments, museums, veterans' groups, and more. Sorry, but Go Fund Me campaigns and other things of that nature typically do not count.
If you itemize on your tax return, you can still claim your charitable contributions, with some temporary changes (which are all beneficial, as well, but that is not what this post is about.)
So, if you are feeling charitable, and have up to an additional $300 to give this holiday season, you should take advantage of this new tax break. Make sure the organization you want to donate to is qualified, and get your receipt! And, as always, if you have any questions, reach out to your friendly tax professional.