Charitable Donations Tax Benefits & Deductions

Even with the Coronavirus Pandemic starting in early March 2020 which had many of us quarantined at home and wearing masks in public, charity donations were up more than 2% in 2020. This generosity came at a time when many U.S. taxpayers had jobs reduced, put on hold, or eliminated due to a weak economy. In order to encourage taxpayers to continue to donate to charities, the CARES Act included a new tax return adjustment to income (deduction). Taxpayers can deduct up to $300 of monetary contributions directly on their tax returns without itemizing deductions.

What is a charitable contribution and what does it mean for you?

Charitable contributions or donations are gifts to qualified non-profit organizations to help support their work on behalf of the people and communities they serve. The gift can be items in new or good (used) condition or cash.

Cash donations include:

• Check
• Payroll deduction
• Check or credit card
• The value of items purchased and immediately donated such as food for the local food pantry or office supplies for the church

Items that are and are not eligible for contribution

• Items eligible to claim:
  • Tithing to a religious organization
  • Payroll deductions to the Red Cross
  • Food for the food pantry
  • Clothing and household goods in good condition
• Items that aren’t eligible for a deduction:
  • Money for a specific person doing volunteer work
  • The value of your volunteer time
  • Child care while doing volunteer work

Cash contributions

Cash contributions are reported on Schedule A. Taxpayers who do not itemize deductions can claim up to $300 of charitable contributions as an adjustment to income. Your contributions to various organizations outside of a store are deductible if you write a check and the organization is listed on the IRS qualified organization list.

Donated goods contribution

Donated goods include non-cash contributions that are in good or better condition. Donated items may include:

• Clothing
• Household items:
  • Furniture
  • Electronics
  • Appliances
  • Linens

Donation limits

Cash donations are limited to 100% of income for 2020 and 2021. For the year 2022 and forward the cash donations are limited to 60% of income

Are you eligible for a deduction? If so, how to claim

If you are itemizing deductions, you can claim all of your charitable contributions. If you claim the standard deduction, you are eligible for a deduction of up to $300 in cash contributions as an adjustment to income.

You can claim the contributions in only one way - standard or itemized deduction. To itemize deductions you must exceed the standard deduction amount for each filing status:

• Single and Married Filing Single (if spouse doesn’t itemize deductions - $12,400
• Head of Household - $18,350
• Married Filing Jointly and Qualifying Widow(er) - $24,800

Using age to your advantage

The law requires taxpayers to start Traditional IRAs or retirement plan distributions when they reach age 72 or no longer work. This is called ‘drawing down’ your account. Your drawdown amount is based on your age and the age of your beneficiary based on life insurance tables.

If you’re age 72 or older, you have an opportunity to make a big charitable contribution. To do this, you need to combine the values of all the traditional IRAs you have money in, then check the life insurance tables to see how much you need to withdraw from your IRA(s) for the year.

If you make your contribution by having your plan administrator directly transfer the money to a charity of your choice, your contribution up to $100,000 of your transfer, will be tax-free. If you make this contribution, you can’t claim it as part of itemized deductions. If you can’t itemize deductions without this contribution, you can claim the standard deduction. If you can do this, it’s essentially a win-win for you. It’s also important to note that money distributed from a pension fund or Roth account isn’t subject to these rules.

New tax deduction for 2020

For the 2020 tax year, the Coronavirus Aid, Relief, and Economic Security (CARES) Act allows all taxpayers to claim an above-the-line deduction of up to $300 in charitable contributions if you don't itemize deductions. The limit is $300 for each filing status, including Married Filing Jointly.