Since the Trump tax law in 2017 increased the standard deduction and capped the deduction for state and local taxes, the number of people who take the standard deduction increased from 70% of all taxpayers to 88%. I was part of the change. I switched to taking the much simpler standard deduction in the last two years. It also means I didn’t get an extra tax deduction for donating to charities. It was all included in the standard deduction.
The CARES Act passed earlier this year created a new above-the-line charitable contributions deduction for the 88% of all taxpayers who don’t itemize deductions. To qualify for this new deduction, the donations have to be in cash, and they have to be donated directly to charities. Donating household items to Goodwill doesn’t count. Donating appreciated stocks doesn’t count. Giving to a donor-advised fund doesn’t count. Because TisBest is officially a donor-advised fund, buying a charity gift card there probably doesn’t count either.
It’s a one-off deal for only 2020 (see CARES Act Charity Donation Deduction: Ongoing or Only 2020?). The deduction is capped at $300. While it’s clear when you’re single, it’s a little ambiguous whether it’s $600 per married couple filing jointly or still $300. Here’s the relevant part from the text of the CARES Act (bold added by me):
SEC. 2204. ALLOWANCE OF PARTIAL ABOVE THE LINE DEDUCTION FOR CHARITABLE CONTRIBUTIONS.CARES Act (page 65)
(a) IN GENERAL.—Section 62(a) of the Internal Revenue Code of 1986 is amended by inserting after paragraph (21) the following new paragraph:
‘‘(22) CHARITABLE CONTRIBUTIONS.—In the case of taxable years beginning in 2020, the amount (not to exceed $300) of qualified charitable contributions made by an eligible individual during the taxable year.’’.
Because it said “individual,” a literal reading may interpret it as $600 per married couple filing jointly. From the TaxACT blog:
Thanks to federal coronavirus relief legislation, taxpayers are now able to take advantage of a new deduction for donating to qualifying charities — up to $300 for individual filers and up to $600 for married couples.
However, some sources said it’s still $300 for married filing jointly. From Kiplinger:
The CARES Act, among other coronavirus relief efforts, has instituted a provision allowing people to deduct $300 for charitable contributions. If you are married and filing jointly, your deduction is still limited to $300.
So what is it when you’re married filing jointly? $300 or $600? We have the definitive answer on page 29 of the IRS Form 1040 Instructions (bold added by me):
If you don’t itemize deductions on Schedule A (Form 1040), you (or you and your spouse if filing jointly) may be able to take a charitable deduction for cash contributions made in 2020.
Enter the total amount of your contributions on line 10b. Don’t enter more than:
• $300 if single, head of household, or qualifying widow(er);
• $300 if married filing jointly; or
• $150 if married filing separately
That resolves it. The above-the-line deduction for 2020 is capped at $300 per tax return whether you’re single or married filing jointly. It’s capped at $150 each if you’re married filing separately.
[Update] Just to make it more confusing, Congress passed a new law that extended this deduction to 2021, and the cap in 2021 for married filing jointly is increased to $600. The cap in 2020 for married filing jointly is still left at $300. See 2021 $300 Charity Deduction For Non-Itemizers $600 Married.
State Income Tax
Some states use the federal Adjusted Gross Income (AGI) as a starting point. Because this $300 lowers your federal AGI, your starting point for state income tax is also lower. If the state allows a deduction for charity donations, it makes sense to add back the $300 and then let you deduct 100% of your donations. Otherwise you’ll be double-dipping. If the state doesn’t allow a deduction for charity donations, adding back the $300 also makes it fair to those who itemize deductions on their federal returns. If the itemizers aren’t able to deduct on the state tax return, you shouldn’t be either.
If you use TurboTax, enter your donation in the deductions section. If TurboTax doesn’t seem to give you the deduction, please read TurboTax 2020 CARES Act $300 Charity Donation Deduction.