Above-The-Line Tax Deduction for Charitable Donations in 2020

The 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act includes a temporary change to tax deductions in an effort to boost charitable donations for organizations who are struggling to help people suffering from COVID-19 shutdowns. As part of the pandemic relief program, you can get a tax break for your charitable contributions even if you don’t itemize on your 2020 tax return. The new provision allows taxpayers who claim the standard deduction to deduct up to $300 in charitable giving to qualifying charities per tax return.

Prior to these pandemic relief updates, the Tax Cuts and Jobs Act (TCJA) passed in 2017 changed the standard deduction, providing the biggest tax break for nearly 90% of taxpayers. The practical implications of TCJA means many taxpayers no longer receive a tax deduction for charitable donations. This article will explore how the special new provision will allow more people to easily deduct up to $300 in donations to qualifying charities this year.

What is Considered a Charitable Donation for the $300 Tax Deduction?

To qualify as a charitable contribution for the $300 tax deduction, the contribution must be a cash (monetary) donation to a qualified 501(c)(3) organization. A cash donation is defined as a form of cash, check, debit, or credit card.

In order to take the above-the-line charitable contribution deduction accurate records must be kept. For most donations, this is as simple as keeping a copy of the receipt received from the charity or a copy of your bank record. The bank record can include a canceled check, statement from a bank, credit union, or credit card company, or electronic funds transfer receipt. The receipt or bank record must include the name of the qualified charity, date of the donation, and amount donated. For additional details on charitable donations and what records the IRS requires you to keep for your 2020 tax return, please refer to the IRS Publication 526.

Charities Accepting Tax Deductible Donations

The IRS states that monetary (cash) donations to the following are deductible as charitable contributions:

  • Nonprofit schools and hospitals
  • The Salvation Army, American Red Cross, CARE, Goodwill Industries, United Way, Boy Scouts of America, Girl Scouts of America, Boys and Girls Clubs of America, etc.
  • Churches, synagogues, temples, mosques, and other religious organizations
  • War veterans' groups
  • Federal, state, and local governments, if your contribution is solely for public purposes (for example, a gift to reduce the public debt or maintain a public park)
  • Expenses paid for a student living with you, sponsored by a qualified organization
  • Out-of-pocket expenses when you serve a qualified organization as a volunteer

To count as a qualifying charity, the institution must be a designated 501(c)(3) entity. You can verify if your charity qualifies by using the IRS’ online search tool. You can search either by the institution's name or employer identification number (EIN). Any reputable organization should give you its EIN when asked. Based on the IRS guidance, nonprofit organizations and churches qualify, however gifts to private individuals or companies do not. In addition, the IRS clarified that donations to supporting organizations and donor-advised funds do not qualify for the special $300 tax deduction.

Understanding Charitable Donation Deduction for Itemizers

Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, taxpayers who itemize can deduct contributions up to 100% of their adjusted gross income (AGI) for tax year 2020 only. In a typical tax year, if you itemize your deductions on your tax return, you can deduct your charitable donations up to 60% of your AGI. Any donation above the 60% can be carried over for up to 5 years.

Above-the-Line Charitable Contribution Deduction in Tax Year 2021

In the spending package passed at the end of 2020, Congress extended and enhanced the $300 above-the-line charitable tax deduction for tax year 2021. For tax year 2021, taxpayers can take a tax deduction up to $300 each for cash (monetary) donations to qualifying charities. This means if you file your tax return jointly with your spouse when you file in 2022 for the 2021 tax year, you will be able to claim up to a $600 deduction.

The Bottom Line

The above-the-line charitable donation tax deduction is not the only update affecting tax filing, the pandemic relief program has changed many IRS standards for filing taxes this year. To ensure you are receiving all the tax deductions and credits you are eligible to take, schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group.