If you're feeling charitably inclined this holiday season, there's an extra incentive to make a donation — but you have to act by Dec. 31.
The pandemic has increased hardship around the country. A staggering quarter of Americans have experienced food insecurity this year, according to one study. To encourage giving during this difficult time, Congress included a $300 charitable tax deduction in the CARES Act for taxpayers who don't itemize their deductions. The deadline to donate and take advantage of it is Dec. 31.
In a typical year, only people who itemize their deductions can deduct charitable expenses. Fewer taxpayers have itemized since the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction. For 2020, it's $12,400 for singles and $24,800 for married people filing jointly.
To itemize, your eligible itemizable expenses — including mortgage interest, qualifying medical expenses, charitable contributions and state and local taxes — must exceed the standard deduction. In the past, more people cleared that hurdle. Most homeowners itemized, for example, so they deducted their charitable contributions along with their mortgage interest, says Mark J. Alaimo, a member of the American Institute of CPA's personal finance committee, in Lawrence, Mass. But that stopped being the case in 2018.
For this year only, everyone can enjoy a small charitable deduction, regardless of your tax filing status. A deduction means that up to $300 is subtracted from your income, and so you're taxed on the lower amount. (It's not a tax credit where you would get $300 for your donation).
The CARES Act specifies that the donation needs to be made in cash. That means you can't deduct a present you purchase for a charity's gift drive. Your recipient needs to be a qualifying 501(c)(3) charitable organization. And remember: save your receipts as proof of donation.