by Stephen Ozen, CPA
According to Giving USA, Americans donated $427 billion to charitable organizations in 2018. Prior to that year, donations were deductible on Schedule A; since the standard deduction was relatively low ($6,500 for single taxpayers and $13,000 for those filing as married) it was fairly easy to have deductions in excess of the standard deduction resulting in most charitable contributions being deductible on your Schedule A (although, limitations did apply).
Sweeping Tax Legislation
Then along came the Tax Cuts & Jobs Act (TCJA) of 2018. This pretty much put a damper on the deductibility of donations. The standard deduction was raised to $12,400 for single tax filers and $24,800 for married couples for 2020. Additionally, with the imposition of a $10,000 limit on state and property tax deductions (as well as other changes and limitations), only those who contributed a significant amount or had a large amount of medical bills on Schedule A were generally able to exceed the standard deduction and benefit from a deduction for their charitable donations. The Tax Foundation estimated that approximately 13% of tax filers would itemize their deductions in 2019 compared to an approximate 31% under pre-TCJA rules.
Everything Changes – again
Those rules would have held true for 2020; however, the COVID-19 pandemic – and the subsequent CARES Act – brought about a few changes to the deductibility of charitable donations which should prove helpful to all taxpayers and provide some encouragement for charitable organizations.
Firstly, eligible individuals who do not itemize, which is most tax payers, may deduct up to $300 in charitable donations as an “above-the-line” deduction (i.e., as an adjustment to gross income in determining adjusted gross income) for tax years beginning in 2020. (As always, there are some restrictions and limitations to be wary of.) An “eligible individual” is an eligible filing unit so an individual filing as a single taxpayer and a married couple filing jointly get the same $300 deduction.
Additionally, the CARES Act provided another incentive for charitable organizations. Formerly, under TCJA, the maximum deduction a taxpayer could get if they itemized their deductions was 60% of their adjusted gross income; the CARES Act increased that to 100% for 2020. Additionally, for C Corporations (not pass through S-Corps), the maximum deduction for charitable contributions was increased from 10% to 25% of taxable income for 2020. (Again, I’d be remiss not to note that restrictions and limitations apply to these changes, too.) This allows you or your Corporation to deduct a greater portion of your charitable contributions.
Donations must be made to a qualified charitable organization. While I do wish my son’s college fund would be considered a qualified charitable organization, it hasn’t quite made it to the IRS’s list of qualified organizations. (I’ll keep checking, though, you never know when this may change. Fingers crossed!)
Don’t Miss Out
As these increased benefits may only be in place for 2020, consider making tax deductible donations to the charitable organizations that matter most to you now; and as always, be sure to consult with your Miller Kaplan tax advisor to best understand how this may impact your specific situation.