Updated: Sep 27, 2021
The United States saw a 3.4% drop in giving from individuals in 2018 following the Tax Cuts and Job Act (TCJA) of 2017 according to the 2019 Giving USA report. This is due to the standard deduction doubling, which left many taxpayers unable to itemize and therefore having no incentive to give to organizations they had given to in the past.
However, under the CARES Act there are a few things that are in favor of the giver!
Nonitemizers, aka those that use the standard deduction, can now write off up to $300 of charitable cash contributions even if they don't file Schedule A. The donation must be cash and given to a public 501(c)(3) charity. This will reduce those taxpayer's taxable income by $300. This is nice but the majority of generous givers are low income. This $300 deduction for those in the lower tax brackets will save the least. So, the IRS is promising this deduction but it's not going to have a big affect on your taxes. For example: a taxpayer that doesn't itemize and is in the 12% tax bracket will only be saving $36 on their 1040 this year.
The 60% of your Adjusted Gross Income (AGI) limit on cash contributions by individuals has been suspended! Taxpayers can now deduct up to 100% of their AGI, essentially giving them no taxable income if they wish to do so. This could be a big help to nonprofits however who can really afford to do this? This suspension will be a tax break that only the wealthy will be able to take advantage of going forward.
If you were blessed enough to be in the position to give during 2020 there are a few things that you should keep in mind to ensure that you are able to write off your gift as a tax deduction and of course America's Favorite EA is here to tell you.
Donations given to individuals are not tax deductible - Covid-19 has left many without work and others ill. Our natural reaction is to want to give and help them. If you do give money to an individual give it from the kindness of your heart and not a for tax deduction because the IRS won't let you write it off anyway. Cash donations must be given to a qualifying tax exempt organization in order for you to write it off on your taxes. Last year the tax courts decided in that a taxpayer could not write off money sent to his ill sister for her medical bills.
Contributions must actually be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method.
If you donate property other than cash to a qualified organization, you may generally deduct the fair market value of the property. If the property has appreciated in value, however, some adjustments may have to be made.
Even if you don't meet the requirements to itemize on your 1040, keep up with all of your charitable contribution statements because depending on where you live you may be able to use them for your state return.
In conclusion, it sounds nice but the above the line $300 Charitable Contribution deduction won't benefit average taxpayers much. They'll save less than $40 on their taxes IF they gave the full $300. Only high earning taxpayers that already itemize will see major benefits if they chose to give above 60% of their AGI.
God loves a cheerful giver, even if the IRS doesn't. Do you think that the IRS should reward lower income taxpayers more for giving instead of high earning taxpayer's reaping the most benefits?
Timalyn S. Bowens EA is America's Favorite EA and Louisville's Tax Expert that will work hard to find a legal solution that is customized for you! As an Enrolled Agent licensed through the Internal Revenue Service Timalyn is able to fight the IRS for taxpayers in all 50 states.
When you are facing questions regarding your personal or business taxes, working with a professional makes all the difference. At Bowens Tax Solutions, we serve our Louisville-area neighbors by providing the tax services and knowledge needed to succeed. We are here to assist you with your tax issues and preventative care. Visit our website at www.bowenstaxsolutions.com for more information.