With new information coming out daily about the coronavirus and its effects, it’s easy to tune out the noise. But there’s one piece of virus-related information you don’t want to ignore — how the Coronavirus Aid, Relief, and Economic Security (CARES) Act could alleviate some of your tax burden for the 2020 tax year. This legislation offers a $300 deduction that every individual should take advantage of before the end of the year. Now that 2019’s taxes are filed away, here’s what to know before filing next year:
Since the Tax Cuts and Jobs Act of 2017 was implemented, some taxpayers have not been able to deduct their charitable donations because they must choose between itemizing all deductions (including charitable cash donations) versus taking the standard deduction. The standard tax deduction ($12,400 for individuals and $24,800 for married, filing jointly) is larger than most filers’ charitable contributions.
But the CARES Act now allows everyone, whether you itemize your deductions or not, to deduct as much as $300 for cash contributions. You’re likely already donating cash to various organizations in your community: your place of worship, your children’s PTA, or a friend’s charity run. Donations made to causes on the increasingly popular platform GoFundMe are tax-deductible as well. As long as the donation is to a recognized 501(c)3 public charity or foundation (and the above examples usually are), you should save your donation receipts and file them with your 2020 taxes as proof of giving. This “above the line” deduction is like free money that reduces your tax burden while helping non-profits you care about — a true win-win for all.
In addition, for those who do itemize their deductions, the CARES Act allows individuals to deduct cash donations in an amount up to 100% of their adjusted gross income — up from 60% under the Tax Cuts and Jobs Act. Businesses can now deduct up to 25% of their taxable income, as well. It’s important to note that these increased limits only apply to cash donations to public charities and foundations that are registered as a (501(c)3).
The CARES Act doesn’t affect tax deductions for qualified charitable contributions funded by an Individual Retirement Account (IRA). (Those over age 70 ½ years old can donate up to $100,000 from their IRA assets to qualifying charities without having that money count as taxable income). However, under CARES rules, you could use your IRA (instead of income or other assets) to fund your usual charitable donations and offset your taxable income, up to 100% of your adjusted gross income. This is a smart way for those between 59 ½ years and 70 ½ years to reduce their tax burden.
As we temporarily pause our social activities, it’s a great time to review your finances and ensure your charitable activities align with your priorities. And as we work together to ensure our communities remain healthy and safe, it’s a great time to consider charitable giving. The $300 tax deduction available to all, plus additional tax incentives seniors can take advantage of will ensure our world comes out of the pandemic stronger than before.
Have Additional Questions? Contact Brian M. Douglas & Associates
How you spend and give your assets can greatly impact your tax liability. Our firm is here to help you and your family determine the best course for your unique financial situation. Reach out to Brian M. Douglas & Associates at (770) 933-9009 for more information about how current tax laws can help you achieve your giving legacy.