Most taxpayers no longer take the itemized deduction since the passing of Tax Cuts and Jobs Act of 2017.
The TCJA effectively doubled the standard deduction raising a much higher bar to clear before medical costs, mortgage interest, state and local taxes and charitable contributions can be used to reduce gross income.
The CARES Act that was passed in March to stem the fallout from the pandemic included a few tax provisions to encourage charitable giving.
Above the line $300 deduction
A $300 “above-the-line” deduction for donations made to qualified charitable organizations is available per return for taxpayers that use the standard deduction. The donation must be made in cash (check, credit card, etc.). As of now this provision is only available for 2020. Though it does have strong bipartisan support and very well could be made permanent.
Expanded AGI limits for Charitable Donations
There is a limit to the overall charitable contribution deduction in a given tax year. For 2020 the CARES Act increases the allowable deduction from 60% to 100% of adjusted gross income. This applies only to charitable gifts made in cash. Gifts made in stock or other noncash forms are limited to 30% of AGI. If the donation does go over the limits the good news is that it can be carried forward and used as an itemized deduction within the next five years.
If you are evaluating an early retirement package or looking at your last year of higher income, a Donor Advised Fund might be a good option to consider. Learn more about that here.
Evaluate Your Charities
As always it’s a good idea to research the charities that you plan on contributing to. Charity Navigator is a good source for information.
Deepen your Charitable Giving Strategy
Determining the best giving strategy, requires knowing what your cash flow expectations will be over the next few years.
To dig in to your charitable giving strategy, download a copy of our checklist “What Issues to Consider When Establishing My Charitable Giving Strategy?”