While the coronavirus hasn’t given Americans much in the way of something nice, the Internal Revenue Service (IRS) wants taxpayers to know it actually does have something worth checking out.
Within the Coronavirus Aid, Relief and Economic Security (CARES) Act -- the government legislation that made the first round of stimulus checks possible -- the IRS is offering expanded tax benefits that can help individuals who want to make a charitable donation before 2020 ends.
Tax changes to lessen some of the economic impact of COVID-19
The CARES Act includes temporary tax modifications that can lessen at least some of the pain when it comes to paying the 2020 tax bill next year. All told, there are two changes for individual taxpayers:
New deduction for people who don't itemize. Heading the list is a change that the IRS says nearly 90 percent of taxpayers potentially qualify for. Typically, taxpayers who opt to take the standard deduction can’t claim a deduction for their charitable contributions. However, those individuals can claim a limited deduction on their 2020 federal income tax returns if they make a cash contribution* to a charity and still claim the standard deduction.
*Note: A cash contribution includes those made by check, credit, or debit card; or amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with the individual's volunteer services to a qualifying charitable organization. Cash contributions do not include the value of things like volunteer services or contributions of household items like you would take to an organization like Goodwill.
The all-important caveat in this deduction says that individuals can claim an "above-the-line" deduction of up to $300 for cash contributions made to “qualifying charities” during 2020. The maximum above-the-line deduction is $150 for married individuals filing separate returns.
Itemizers can get as high as a 100 percent limit on cash contributions. Although there are certain limits, taxpayers who itemize have the OK to claim a deduction for charitable contributions if they’re made to qualifying charitable organizations. These limits run from 20-60 percent of an individual's adjusted gross income ("AGI") and vary by the type of contribution and type of charitable organization the money is donated to.
Where this change really comes in handy is the clause in the CARES Act that permits individuals to apply for an increased limit, up to 100 percent of their AGI, for qualified contributions. That election is made on a contribution-by-contribution basis and has to be a “cash” contribution made during the calendar year 2020 to a qualifying charitable organization.
Like any change from the IRS, there are fine points to consider. The agency offers a complete list of those on its website.
Keep good records
Despite the upsides of these changes, the IRS reminds taxpayers that there are forms to be filled out and special recordkeeping to provide if a taxpayer wants to claim a charitable contribution deduction.
“Usually, this includes obtaining a receipt or acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt. For donations of property, additional recordkeeping rules may apply, including filing a Form 8283 and obtaining a qualified appraisal,” the IRS says.
Does this apply to the new round of stimulus checks?
With Congress preparing to provide another round of stimulus checks, it’s unknown if any of the original CARES Act tax benefits will be expanded upon, but anything’s possible.
To keep up-to-date on everything that may impact coronavirus-related tax changes, be sure to check in at IRS.gov/Coronavirus before going headlong into filling out forms and organizing copies of things like charitable contributions.