The $300/$600 Universal Charitable Deduction

Make sure you take advantage of this tax break for charitable donations through 2021.

In this time of pandemic, the nation's nonprofits are hurting along with everyone else and are badly in need of donations. The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted in 2020, included several temporary tax changes designed to help charities. Among these is a special universal charitable deduction for taxpayers who don't itemize their personal deductions.

New Charitable Tax Deduction Under the CARES Act

Under regular tax rules, taxpayers can deduct charitable contributions only if they itemize their personal deductions on IRS Schedule A. Charitable contributions are one type of personal deduction, along with things like home mortgage interest and state and local taxes.

However, you can itemize only if all your personal deductions are more than the standard deduction. The Tax Cuts and Jobs Act (TCJA) that went into effect in 2018 roughly doubled the standard deduction. For 2021, it is $12,550 for singles and $25,100 for marrieds filing jointly. The TCJA also eliminated or capped many personal deductions. As a result, very few taxpayers are able to itemize today: In fact, nearly nine out of ten take the standard deduction.

All this means that the vast majority of taxpayers cannot deduct their charitable contributions under the normal tax rules. This obviously discourages people from making such contributions. So, when Congress enacted the CARES Act, it included a special $300 charitable deduction for 2020 for people who choose to take the standard deduction, rather than itemizing their deductions. Unfortunately, this deduction came with a marriage penalty: the $300 limit applied to both single and joint filers. This led to complaints, so Congress revised the law to extend this deduction to 2021 and eliminate the marriage penalty: The maximum deduction is $600 for married nonitemizers who file jointly, but for 2021 only. The deduction remains $300 for single taxpayers for 2021.

To qualify for this deduction, your contribution must be made to a "qualified" charity--this is any Section 501(c)(3) public charity. These include:

  • churches, temples, synagogues, mosques, and other religious organizations
  • most nonprofit charitable organizations, such as the Red Cross and United Way
  • most nonprofit educational organizations, including the Boy and Girl Scouts of America, colleges, museums, and day care centers for working parents, and
  • nonprofit hospitals and medical research organizations.

Contributions to supporting organizations and donor-advised funds don't qualify for this deduction.

You can check whether a nonprofit is a qualified charity by using the Tax Exempt Organization Search (TEOS) tool on the IRS website (www.IRS.gov).

Your $300/$600 maximum contribution must be made in cash--this includes contributions by check, credit card, or debit card. You can't contribute household items like old clothing, securities, or other property.

How Much Tax Will This Charitable Deduction Save You?

It depends on your income tax bracket. These range from 10% to 37%. If you're in the 12% income tax bracket, a $600 contribution will save $72 in income tax. If you're in the top 37% bracket, you'll save $222.

Be sure to keep a cancelled check, bank record, or receipt for all your cash charitable contributions. You don't have to file it with your tax return, just keep it with your tax records it case you're audited.

Note that this universal charitable deduction is a temporary measure enacted only for 2020 and 2021. This means it won't be available for 2022 and later unless Congress amends the law.

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