tax breaks — April 03, 2020

COVID-19 Relief Strategy—CARES Act Allows $300 Above-the-Line Charitable Donation Deduction

by Susannah McQuitty

Multiple opportunities to help are available with the CARES Act $300 charitable giving deduction.

We’re all in this fight against the Coronavirus together. On top of combating the spread of the disease, people have been joining ranks to support each other financially – especially through fundraisers and donations.

Uncle Sam wants to keep that altruism firing on all cylinders, so the CARES Act relief initiative now allows taxpayers to deduct up to $300 of their cash donations to qualifying organizations without itemizing deductions.

How is the new $300 deduction different from the regular charitable contribution deduction?

Usually, only those who itemize their deductions qualify for the charitable contribution deduction. The deduction reduces taxable income after the donor’s adjusted gross income (AGI) has been calculated. (Your AGI determines eligibility for certain tax breaks.)

The deduction also usually only allows taxpayers to deduct donations that are up to 60% of their AGI.

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, the IRS applies it when calculating your AGI.

In plain English, if you donate up to $300 in cash to a qualified organization, your AGI will be reduced by up to $300—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.

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?

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.

Don’t know where to start? In addition to local 501(c)(3) non-profits such as food pantries, soup kitchens, homeless shelters, churches and hospitals, here are some major organizations that qualify for the deduction that could use our help:

Stronger together

Relief efforts like the new charitable deduction provided by the CARES Act are just a small part of a larger whole – millions of people are coming together virtually to support one another, and it’s a beautiful thing to see. The COVID-19 pandemic is a tragic, unpredictable event, but we will rise above it. Stay safe, stay healthy, and stay tuned for more tax news on the Coronavirus.

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