As we enter the end of the calendar year, holiday festivities are typically at the forefront of our thoughts. Lingering at the back of our minds, however, lurk end-of-year tax considerations. While this year has been overwhelming for all of us, luckily there are some bright spots when planning for 2020 taxes. With the impact of COVID-19, many people are looking for a way to make a difference in their communities. New options from the 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act mean that you can support your favorite nonprofit charity while reducing your 2020 tax bill.
Based on the new CARES Act regulations, taxpayers who do not itemize can claim an “above-the-line” deduction for charitable gifts up to $300. This means that for taxpayers that use the standard deduction, a donation to a qualified 501(c)(3) nonprofit of up to $300 can reduce your adjusted gross income (AGI) up to $300. For a single donation of $250 or more, remember to get a receipt from the nonprofit organization and keep it with your tax records.
Taxpayers who itemize deductions will see more benefits under the CARES Act guidelines. The level of deduction for charitable gift deductions has increased from 60 percent of adjusted gross income (AGI) in 2019 to 100 percent of AGI starting in 2020. For corporations, the limit on qualified charitable deductions was increased from 10 percent of taxable income to 25 percent with changes in the 2020 CARES Act.
“It’s possible to have a sizable deduction if you make a cash donation to a public charity,” says Bill Simer, a partner at Eide Bailly in Spokane. “Different limitations apply to non-cash donations and donations to donor-advised funds.”
Why is it important to think about your giving this year, especially when budgets are tight? First, nonprofits serving our community depend on individual generosity. According to the 2020 Giving USA report, 70 percent of charitable giving comes from individuals, with $310 billion donated in 2019. Second, nonprofits are facing unprecedented challenges meeting escalating needs. A November 2020 survey found that 65 percent of nonprofits canceled fundraising events and nearly half (45 percent) faced other losses of expected funding. Adding a donation to your 2020 tax planning can benefit both you and your community members in need.
Of course, consult a professional adviser to see how these rules apply to your situation before filing your 2020 taxes. If you have been thinking about how you can help your community in the midst of this devastating pandemic, the time to act is now, before the tax year comes to a close.
Milagros Yoch is an Innovia Foundation Fellow and a senior at Gonzaga University.