Don't Mess With Taxes

Reviewed and updated May 1, 2021

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You're doing your part to help flatten the coronavirus transmission curve.

You've been sitting at in your house for weeks. (Thanks, streaming services!) You're washing your hands so much, they're raw. (Moisturize, too. It's an added coronavirus prophylactic.) You're providing lessons and activities for your now home-schooled kiddos. (Take into account your child's needs and personality and take advantage of the many online resources.)

But you want to do more. Specifically, you want to help others who aren't in such relatively good situations as you and yours.

Thank you! There are many ways to help, notably by supporting nonprofits that already are set up to lend assistance where it's needed both in your community and nationwide.

Plus, the Coronavirus Aid, Relief and Economic Security (CARES) Act, which now has cleared the House and Senate and is on its way to the White House to be was signed into law this afternoon, also includes a new charitable giving tax break.

COVID-19 and other charities: First, a quick look at ways we can help. There are many. As the COVID-19 crisis spreads across the United States, it is putting added pressure on all nonprofits, even those that aren't directly responding to the illness.

Many nonprofit volunteers and employees are now just like you, stuck at home either as a preventative measure or because, unfortunately, they are showing symptoms or tested positive. Other charities have canceled long-planned programs and fundraisers out of concern for public safety. Plus, the pandemic's associated economic uncertainty has caused many donors to dial back their giving.

If you are able to give, you can send your financial help, which is what groups say is the best way, especially in emergency circumstances, to a variety of coronavirus-related efforts.

Areas of need: You can give to nonprofits that directly support medical needs exacerbated by the virus outbreak. These range from providing crucial protective equipment for front-line health staff to support for free clinics to organizations that support development of potential diagnostics and vaccines.

Don't forget nonprofits that help protect vulnerable populations who may be affected the most by the pandemic. These safety net organizations include food banks, soup kitchens and shelters.

You can start by checking with the local offices of national charities, as well as your community's hospitals and places of worship for suggestions that will help close to home.

Charity Navigator has an online running list of charities that have created funds to support communities around the world affected by the pandemic. The charity watchdog and evaluator has broken down the nonprofits offering COVID-19 support into the following categories:

• Medical Services,
• Relief Supplies: Health and Medical,
• Relief Supplies: Community Support and Services,
• Education and Awareness, 
• Local Organizations, and  
• Cross-Categorical.

Don't overlook other groups: Finally, don't forget about other charities that aren't focused on coronavirus. As support shifts to groups that are the COVID-19 charitable front lines, other groups are seeing interest in their efforts ebb.

Hardest hit are those organizations that rely on in-person volunteerism, fundraising events or public performances, all of which have come to a standstill, to survive. Continue supporting the organizations you always have. They need your help now, too.

Tax break for giving: In order to get any tax benefit from giving — which I must emphasize is NOT why most people donate to charity — you have to itemize. However, fewer folks nowadays are filing Schedule A, which is where those charitable gifts are deducted.

The reason for the drop is the Tax Cuts and Jobs Act (TCJA), whose tax code changes mostly took effect with the 2018 tax year. This tax reform measure greatly increased the standard deduction amounts. It also limited some popular Schedule A claims, particularly those previously used by homeowners.

All that has meant fewer itemizers who give and deduct those gifts. And while, as I noted earlier, giving isn't always directly connected to a donation's deductibilty, some is.

The coronavirus relief bill, however, will give nonitemizers a chance to get a tax break, too. For those who still itemize, it also allows them to give even more.

No itemizing needed gift deduction: First, there's a new option for generous filers who claim the standard deduction.

The CARES Act will let individuals contribute up to $300 to certain charitable organizations. It applies to all filing statuses. Basically, this is an addition to what used to be known as above-the-line deductions that are shown as adjustments to income on Form 1040's Schedule 1. These amounts reduce your total income to a lower adjusted gross income that, in most cases, means a smaller tax bill.

UPDATE, Aug. 27, 2020: The IRS has released proposed changes to the Form 1040 that involve this new charitable deduction. While it is an adjustment to income, it's not entered on Schedule 1 with the other ways to reduce your gross income. Instead, it is specifically noted on the revised tax year 2020 Form 1040 as line 10b. Your allowable donation amount then is added to the rest of your Schedule 1 adjustments (line 10a) on your 1040 form and entered on line 10c. 

UPDATE, Dec. 27, 2020: The charitable tax deduction for nonitemizers gets better for the 2021 tax year. The government spending/coronavirus relief law signed into law today doubles the direct $300 charitable deduction amount to $600 for married couples who file a joint tax return.

Philanthropic groups, individuals and some lawmakers have supported this non-itemizing donation deduction for many years. These 2020 and 2021 COVID-prompted changes could be a big enough opening of the tax deduction doorway to get this tax break permanently added (and further enhanced) to the tax code.

Enhanced itemizing tax break: Folks who give larger gifts and still itemize to claim them, the CARES Act increases their donor deduction option.

Tax law limits the amount a person can give and then write off on their taxes. For gifts to the nonprofits categorized as 501(c)(3) public charities that most of us give to, that limit used to be 50 percent of your adjusted gross income (AGI). The TCJA upped that to 60 percent of AGI. The increase was created to encourage wealthy donors to give more each year.

The coronavirus relief bill does away with the deductible giving percentage for 2020. So during this peak (we hope) of COVID-19 expansion, you can give as much as you want to charities without worrying that your donation exceeds the deductible percentage cap.

For companies that give, the current 10-percent limitation is increased to 25 percent of taxable income. This provision also increases the limitation on deductions for contributions of food inventory from 15 percent to 25 percent.

Regular tax rules for giving remain: Again, all these CARES Act gift-giving tax provision changes are for the 2020 tax year only. (For now.)

Also remember that other tax rules related to donations remain, notably that you must give to an IRS-approved charitable group and you still need to keep documentation of your gifts.

Whichever way you choose to give, during the COVID-19 crises or more normal times to which we (soon, I hope) will return, thanks! And if you can get a tax break for being generous, be sure to claim it.

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