Your Giving Tuesday Donations Could Mean a $300 Tax Break
by Susannah McQuitty
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Giving Tuesday is always the week after Thanksgiving, and it’s an opportunity for people to splurge in their generosity after most of the Christmas shopping is finished over the weekend. It’s a fantastic awareness campaign, and this year, your donations could help you maximize tax savings too.
The CARES Act allows taxpayers to deduct up to $300 of their 2020 cash donations to qualifying organizations without itemizing deductions.
How is the CARES Act $300 deduction different from the regular charitable contribution deduction?
In a typical year, only those who itemize their deductions are able to take a deduction for charitable contributions. The itemized deduction for donations reduces taxable income after the donor’s adjusted gross income (AGI) has been calculated. (Your AGI determines eligibility for certain tax breaks.)
The new $300 deduction from the CARES Act, on the other hand, is specifically for those who don’t itemize their deductions and would typically not get any tax benefit for donations. Since it’s considered an above-the-line deduction, it reduces your income prior to determining your AGI.
In plain English, if you donate up to $300 in cash to a qualified organization, your AGI will be reduced by your donation amounts. That ultimately lowers your tax bill—and you can still claim the standard deduction.
Can you take the new $300 deduction if you itemize deductions?
No; if you itemize, you will still claim all of your charitable donations on Schedule A – no double-dipping or dividing here.
If I’m married, do each of us get $300 for the charitable contribution deduction?
That depends on the year. For your 2020 taxes, married couples who file a joint return can deduct up to $300 of their charitable donations; married couples who file separately can each deduct up to $150. For 2021 taxes, however, married couples filing jointly can deduct up to $600 of their charitable donations—double the amount in 2020.
Does the CARES Act affect the regular charitable contributions deduction too?
It does for those who are very philanthropic. The CARES Act raised the bar for the deductible amount of donations for those itemizing deductions too – it’s now up from 60% to 100% of AGI, so (hypothetically) you could donate your entire year’s income and walk away with no taxes owed.
How does the new deduction help provide COVID-19 relief?
Providing tax benefits for those who claim the standard deduction means that any taxpayer, regardless of whether they itemize, can now get a tax break for their generosity.
This is a big deal, especially when you consider that the increased standard deduction brought about by Tax Cuts & Jobs Act of 2017 drastically reduced the number of taxpayers who qualify to itemized deductions.
It’s an incentive to give in 2020 and have less taxes owed when you file in 2021, so people are encouraged to help now, when it’s needed most.
Where can I donate to a qualified organization?
There are hundreds of thousands of qualified organizations out there, and we particularly love Healing Waters International—they engineer clean water filtration systems and help communities around the world run water stores that boost economies and empower developing areas. Health and hygiene education is also a huge part of their outreach, which is more necessary than ever in light of the pandemic.
Remember that the deduction only applies to cash donations made to qualified 501(c)(3) organizations, so be mindful of where you send money if you want to claim the deduction. The IRS.gov site has a database with every qualified organization, which you can search to make sure your charity of choice qualifies.
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