Use the New Break for Charitable Contributions With Your Standard Deduction This Year
When filing your tax return, watch out for the new charitable contribution tax credit , which allows you to deduct $ 300 from your taxable income, even if you are already using the standard deduction. Since this is a new deduction that goes beyond the norm, it is easy to overlook it, especially if you are a typical W-2 employee who tends to file taxes on autopilot.
What is the charitable contribution deducted from?
In response to COVID, the CARES Act established a new $ 300 deduction for charitable donations for individuals or joint returners in the 2020 tax season (see line 10b on Form 1040 ). The year-end legislative package also extended this tax credit until 2021, allowing those who are married and each filing a joint return to receive a $ 300 deduction, totaling $ 600.
The key point here is that this is a subtraction above the line . Typically, charitable donation tax credits require you to list your deductions one at a time, but 87% of donors take the standard deduction and thus skip charity tax credits. The reason is that a flat standard deduction is usually the best option for lowering your gross taxable income, if not more convenient than a breakdown by clause (the deduction is $ 12,400 for individual filing applicants and $ 24,800 for joint filing with marriage). In this case, however, you can get some tax refund on money donated to charity, even with a standard deduction.
Some restrictions apply
The deduction only applies to donations made in cash (currency, credit or debit cards, checks, wire transfers), which means you cannot claim clothing that you could give to Goodwill or non-perishable food in the food pantry. You also cannot deduct royalties for your time or services such as volunteer work. You also cannot solicit donations related to the exchange of goods that may bring you personal benefit, such as buying baked goods at a charity sale or buying a lottery ticket.
Finally, the charity must be a qualified organization in the eyes of the IRS. Before applying for a donation, use this IRS search tool to find out if a charitable organization is eligible for tax-free charitable contributions.