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 isn’t a one-off for only 2020. This deduction is available every year until Congress changes the law again. [Updated on Nov. 11, 2020. See comment #5.] 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? The IRS released the Form 1040 draft instructions last week. Now we have the definitive answer on page 29 (bold added by me):
If you don’t itemize deductions on Schedule A (Form 1040), you (or you and your spouse if filing jointly) can take a charitable deduction of up to $300 for cash contributions made in 2020 to organizations that are religious, charitable, educational, scientific, or literary in purpose. See Pub. 526 for more information on the types of organizations that qualify. A deduction can’t be taken for a contribution to an organization described in IRC 509(a)(3) or for the establishment of a new, or maintenance of an existing, donor advised fund. Also, contributions of noncash property and contributions carried forward from prior years don’t qualify for this deduction. See the Instructions for Schedule A and Pub. 526 for more information on those types of contributions. Enter the total amount of your contributions on line 10b. Don’t enter more than $300.
That resolves it. The above-the-line deduction is capped at $300 per tax return whether you’re single or married.
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