CARES ACT Charitable Contributions Potentially Huge Tax Deduction for some
I recently had a conversation with a friend and tried to explain how some people get credit for charitable donations they make during the year to lowering their tax bill and others do not. I thought I explained it perfectly “If you itemize your taxes you get to deduct any charitable contributions made during the year, dollar for dollar on your tax return; however, due to the CARES Act this year you get to deduct up to $300 as an above the line deduction regardless of whether or not you itemize.” Rightfully my friend responded with a bit of sarcasm “Crystal clear mate thanks, you just need to fill out form 26.1-b, itemize your stuff and submit it on the next full moon.”
I am going to try this again, back to the basics as best I can: when you, your parents, your friend, your CPA, or whoever is preparing your tax return there are two options of major deductions that you can choose to reduce your tax bill. choose the option that lowers your tax bill the most.
First option, the Standard Deduction – The simplicity of this option makes it attractive, but it may not lower your taxes which is allowed for all to help simplify the tax return and is a set amount you are allowed to take as a deduction on your tax return ($24,800 for married filing joint and $12,400 for single filers). If you take the standard deduction you do not get to take charitable contributions as a deduction to your tax liability.
Second option, itemize your deductions, which for most people consist of these three categories:
Total Charitable Contributions made during the year
Total Mortgage Interest paid during the year
Total Real Estate Tax/State and Local (maximum allowed for this category is $10,000) for the year
In order to take advantage of the itemize option the total of the major categories above must be greater than $12,400 for single filers and $24,800 for married filers.
If you do not think you will qualify to itemize your deductions the CARES Act allows up to $300 in charitable donations for people who take the standard deduction in 2020, which means you do not have to itemize your taxes to get at least get a $300 benefit to lower your tax bill. For those that can afford to give anything to a qualified charity that means something to you will get at least some benefit when it comes tax time. How did I do this time?
Now for the big news for you itemizers out there, if there was ever a time to help a charity that means something to you and you are fortunate enough to accumulated wealth to help others, 2020 may be the year. The normal tax law limits charitable contributions to 60% of your Adjusted Gross Income (AGI); however, the CARES ACT made it that you can contribute 100% of your AGI as a Charitable Contributions. To sum it up you can get your tax liability to zero in 2020 with charitable contributions and help not-for-profits during this challenging time for all. If you have any questions please reach out to tlund@tszcpa.com or by phone 216-765-8110