- The CARES Act authorized over $2 trillion in economic relief last spring as the coronavirus decimated businesses and the financial security of everyday Americans.
- The bill contained one provision incentivizing people to help others in need: a new above-the-line charitable tax deduction.
- Beginning with 2020 tax returns, taxpayers can claim up to $300 in cash contributions made by December 31 to charity as a deduction without itemizing.
- The IRS estimates that nearly 90% of US taxpayers take the standard deduction instead of itemizing.
These lifelines helped millions of Americans get by as the coronavirus spread throughout the US. As of early December, lawmakers are still battling over follow-up legislation.
But tucked into the CARES Act was a smaller provision incentivizing Americans who are in a position to help others in need: a new above-the-line charitable deduction.
Beginning with 2020 tax returns, taxpayers will be able to claim up to $300 in cash contributions made by check, debit card, or credit card to a nonprofit charity this year as a deduction from their gross income if they take the standard deduction. This deduction will ultimately reduce the amount of income that's taxable.
Over 130 million US taxpayers could qualify for the new charitable tax break
Usually taxpayers who want to claim charitable deductions need to itemize. Ever since the standard deduction amounts were increased under the 2017 Tax Cuts and Jobs Act, fewer people have been able to itemize deductions.
The IRS estimated in November that nearly nine in 10 taxpayers took the standard deduction instead of itemizing in 2018, which is the latest data available. That means the new provision potentially qualifies some 134 million taxpayers to claim the charitable tax deduction, the IRS reported.
The coronavirus pandemic has impacted nearly every sector of American life, from healthcare to the restaurant industry. If you're looking to donate, Charity Navigator has a list of the highly rated charities currently responding to the crisis (use this IRS tool to double-check that the charity is tax-deduction eligible).
Don't forget to keep all your electronic or paper receipts or have bank records showing the date and amount of your contributions.
Source: Business Insider, 12/2/2020