Tax Return Win-Win: IRS Introduces New Provision That Will Boost Your Return AND Help Your Favorite Charities
We’ve got great news for our clients who were feeling especially generous during the last year and made significant contributions to charitable organizations during 2020. As part of the CARES act, the IRS has announced a temporary tax break that allows more people to deduct up to $300 in qualifying donations when they file their taxes in 2021—even if they choose the standard deduction rather than itemizing.
Let’s get right to the specifics so you can determine if your charitable giving qualifies. Taxpayers must have made these cash donations of up to $300 before December 31, 2020. Of course when we say “cash” that includes payments by check, credit card, or debit card as well. This deduction is limited to $300 even for married couples. Almost 90% of taxpayers take the standard deduction, so there’s a high probability your donations qualify for this tax break.
If you think you made a qualifying donation, you can confirm an organization’s charitable status by using the IRS’ online tool, the Tax Exempt Organization Search (TEOS). If your organization isn’t listed here, simply check their website or call to inquire about their tax-exempt status.
Side note: Though cash contributions to most charitable organizations qualify, those made to supporting organizations and donor-advised funds do not.
When gathering all of your paperwork for your 2020 tax return, make sure you get a receipt of any donations to charities, either by bank record or in writing from the organization including the date and amount donated. Although you don’t actually need to submit this documentation with your tax return, you’ll want to file it away safely in the event of an audit.
The best part of this new provision is that it’s considered an “above-the-line deduction” which means it lowers both your adjusted gross income and taxable income and ultimately leads to tax savings for charitable donors. You can find this deduction on the front page of your 1040 form at line 10(b). Make sure you don’t skip it this year!
Obviously this is a nice little tax break for you, but it also benefits those organizations that are most in need after experiencing an unprecedented year due to COVID. IRS Commissioner Chuck Rettig shared that, “We encourage people to explore this option to help deserving tax-exempt organizations–and the people and causes they serve."
Additionally, the IRS has put forth other temporary provisions designed to help charities through the CARES Act. These include higher charitable contribution limits for corporations, individuals who itemize their deductions and businesses that give food inventory to food banks and other eligible charities. For more information about these and other Coronavirus-related tax relief provisions, visit IRS.gov/coronavirus.
If you have any questions about your charitable contributions in 2020, or any other items on your tax return, be sure to get us your paperwork now. We’re closing in on the busy season around here and want to give every return the time and attention it deserves.
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