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Charitable contribution changes in 2020

The chaotic events of this year have put a spotlight on many opportunities for charitable giving. These contributions are often touted as “tax deductible” …but understanding how they fit into your tax return can be a little tricky. Giving money to charity is a killer way to help others and contribute to society. Here are a few tax tips that may be helpful to consider before the year ends.

tl;dr: some things changed in 2020 that affect how charitable contributions interact with standard/itemized deductions.

The standard deduction for 2020 is $12k for a single filer and $24k for joint filers. Unless your itemized deductions exceed this amount, you will automatically be eligible to take the standard deduction when you file your taxes. (Examples of itemized deductions include state & local taxes, charitable donations, mortgage interest, and property taxes).

In past years, if you opted for the standard deduction, all charitable donations would be rolled in, offering no additional deduction. Things are a bit different this year.

2020 Changes

1. There’s a new $300 charitable deduction. This can be taken on your 2020 return even if you take the standard deduction. Make sure your CPA captures this on your return, especially if you’ve always taken the standard deduction. It is for cash contributions and is not applicable to non-cash contributions.

2. Cash contributions have less limitations. The normal law is that your charitable cash contributions are capped at 60% of your adjusted gross income. Through the CARES act, you are now capped at 100% (Note that this is only for cash. Cash is not normally the most tax-efficient way to give because you may incur additional taxes when you convert an asset to cash (i.e. selling stock or real estate)). If you have excess cash lying around, and want to lower your tax bill, this could be a good option to consider.

3. That 30% AGI limit remains in place for non-cash, appreciated assets. However, if your contribution exceeds your own limit, it can be carried forward for up to five years.

Regardless of your motivation for making charitable contributions, the year is quickly coming to an end. You must complete your contributions by Dec 31st to deduct them on your 2020 return. One interesting loophole is that you are able to deduct a charitable contribution if you donate with a credit card prior to year-end, but don’t pay it off until a later date.

The CARES Act introduced some interesting changes to this year’s tax code.

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Please enjoy the rest of your week and have a Happy New Year!