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Donate a few dollars to your favorite charity in time for the holidays? You can finally get tax relief for this.
The CARES Act, which was enacted this spring, provided for an “above-the-line partial deduction” for charitable donations.
This allows people who benefit from the standard deduction – which is $ 12,400 for single filers and $ 24,800 for people married jointly in 2020 – to claim a deduction of up to $ 300 in donations.
You would claim this tax break when you file your 2020 return next spring.
“The only caveat is that the donation must be made directly to a charity and it must be in cash,” rather than stocks or other assets, said Mark Alaimo, CPA and member of the financial specialists committee staff of the American Institute of CPA.
You can also use a credit card or check to donate.
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Fewer people have been calling for tax breaks for charitable donations since the Tax Cuts and Jobs Act came into effect in 2018.
This is because the tax overhaul also roughly doubled the standard deduction, reducing the number of taxpayers taking itemized deductions.
In the 2018 tax year, around 17.5 million returns claimed itemized deductions – write-offs including charitable donations, mortgage interest and other reductions, the IRS has found.
This is down from the 46.9 million returns that detailed deductions in the 2017 tax year.
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As a result, fewer people also reported a tax relief for donations: 14.8 million declarations were the subject of a charitable deduction in 2018, compared to 37.9 million in 2017.
Deductions reduce taxable income based on your federal tax bracket. This means that the higher your bracket, the more you save.
In essence, this means that a $ 300 deduction is only worth $ 30 for someone in the 10% tax bracket, according to Marc Goldwein, senior policy director of the Committee for a Responsible Federal Budget.
Meanwhile, a $ 300 deduction is worth $ 111 for someone in the 37% bracket.
See below for a breakdown of marginal income tax brackets for 2020.
2020 tax brackets
If you plan to take a write-off of the money you donate to your favorite charity, be sure to keep any return receipts or receipts.
Usually you can write off a donation of $ 250 or more if you have received written acknowledgment from the charity.
In an age when people use their credit cards to donate to their favorite charities, the “thank you” email you receive from the organization is proof of your donation, Alaimo said.
Print this document or save the email. You will need it when you file your taxes next spring.