By Catalin Clarke, CPA

Qualified Charitable Contributions have long been a tax deduction for individuals. However, they are an itemized deduction on a taxpayer’s Schedule A - therefore no incentive exists for non-itemizers.

Brief Background

Taxpayers can choose to take either a standard deduction ($12,400 for taxpayers filing as single in 2020, $24,800 for married filing jointly) or tally up their itemized deductions (property taxes, medical expenses, home mortgage interest, charity, and a few other things). Many people may have some itemized deductions, but the standard deduction is far more advantageous.

For Example: Kevin, a single taxpayer, pays $2,000 of property taxes, $5,000 of mortgage interest, and $500 of qualified charitable donations. It would be much wiser for him to take the $12,400 standard deduction instead of the $7,500 of itemized deductions ($2,000 + $5,000 +$500 = $7,500). Kevin is donating money to charity but receiving no tax benefit.

CARES Act Impact

Under the CARES Act there is a provision that allows taxpayers to deduct up to $300 of charitable giving outside of their itemized deductions, assuming they do not claim any itemized deductions. Meaning our old friend from the first paragraph Kevin could take the $12,400 standard deduction as well as $300 of his charitable deductions for a total of $12,700. The catch is that this is only for 2020, as of now.

Requirements

The regular requirements still apply such as the gift being made with donative intent to a qualifying charitable organization and substantiated when it is given. Gifts for this purpose must be of money or property - time spent volunteering does not count.

If you’ve been trying to decide whether to donate to a charity, this special allowance may provide the incentive you’ve been looking for.

This is not to be considered tax advice and individual situations may vary. Please consult your tax advisor for specific guidance.