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Special COVID pandemic tax benefits for charitable help

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Congress plans to pass this evening its second round of COVID-19 help for millions of Americans.

It's a huge bill. Granted, much of its 5,593 pages of dense legislative language cover the funding bills required to keep the federal government open through fiscal year 2021. Lawmakers decided to incorporate some pandemic relief measures into this must-pass bill.

Obviously, there are associated tax implications.

I'll be writing about some of those coronavirus-related tax matters in the coming days once they are officially enacted and I've had a change to read and decipher them.

Some checks, but not as big as the first: Obviously, most folks want details on who will get the reported $600 relief checks. And how and when the money will arrive.

I can give you a short answer, even without going through the actual bill.

The amount is not nearly enough for a lot of people and those who will get some money won't get it nearly quickly enough.

Give and give some more if you can: That's why those of us who are making it through the COVID-19 pandemic relatively successfully, from both health and financial perspectives, should consider helping our family, friends and neighbors who aren't doing so well.

I know lots of y'all already have done myriad good deeds. You get all my respect and love and thanks. 

And I know lots more folks want to do something or do more. Thanks for whatever you've done. Don't beat yourself up for not being able to do more.

Remember, things as simple as reaching out to someone, by regular or video call, is a welcome gift in this prolonged time of isolation. The same goes for sending a written message, either electronically or the old-school holiday card or note, to brighten the recipient's day.

More pandemic donation tax breaks: However, if you are able to give monetarily, remember that the Internal Revenue Code also wants to thank you by providing some tax benefits.

Below is a roundup from the Internal Revenue Service of expanded tax benefits, largely from provisions in the Coronavirus Aid, Relief and Economic Security (CARES) Act, and how they can help both individuals and businesses that give to charity before the end of this year.

There's a new deduction for people who don't itemize.
Most taxpayers — the IRS says it's close to 90 percent of us — choose to take the standard deduction. For years, that's meant these filers couldn't claim any tax deduction for their charitable contributions.

The CARES Act changed that.

Under this first COVID-19 relief bill, folks who donate but don't itemize on Schedule A can claim a limited tax deduction directly on their 2020 tax year Form 1040. The key, as is always the tax case, is following the rules noted in the following paragraphs.

2020 Form 1040 draft standard deduction donation line 10b

The maximum deduction allowed is $300 per tax return. That covers both single and married filing jointly taxpayers. It's a $150 maximum for married individuals who file separate returns.

The charitable gifts must be made in cash, which in the IRS' eyes is not just actual dollars, but also gifts by check or credit card.

The donations must go to certain qualifying charitable organizations.

However, you won't be able to claim this above-the-line charitable donation deduction if any of the following apply:

  • Gifts to donor advised funds (DAFs) do not qualify for this deduction.
  • Most cash contributions to charitable remainder trusts (CRT) also don't count here.
  • Neither do gifts to supporting organizations. These are charities that carry out their tax-exempt purposes by supporting other nonprofits.
  • Cash contributions carried forward from prior tax years also do not qualify for this standard filer donation deduction.

Also, this deduction is for the 2020 tax year only. So if you can give by Dec. 31, do so. That will let you claim up to $300 of your gift on your coming tax return.

There was talk about continuing and expanding the standard filers' donation deduction in the COVID-19 2.0 relief bill now being considered on Capitol Hill. I'll let you know if it made the cut when I finish reading it and Congress takes its final votes.

UPDATE, 7:15 p.m. Monday, Dec. 21, 2020: I'm jumping the gun a bit here. Even though the vote hasn't been taken, I wanted to let you know there is good news for generous married couples. The new COVID-19 bill extends the non-itemizer deduction option to 2021 and increases the deduction to $600 for a married couple filing jointly.

UPDATE, 7:34 p.m. CST, Dec. 27, 2020: The government spending/COVID relief bill became law tonight. Part of the almost 6,000-page measure that will keep the federal government open through Sept. 30, 2021, and provide at least some financial help ($600 per person) for those struggling due to coronavirus economic cutbacks also included these charitable giving changes.

Itemizers can much more and deduct it on 2020 taxes.
While taxpayers who itemize get more leeway in giving and writing off those gifts, there still are some limits. Or were some until the CARES Act became law back in late March.

Individuals who itemize generally are limited to giving a certain percentage of their adjusted gross income, or AGI. The gift giving caps range from 20 percent to 60 percent of AGI depending on the type contribution and the nonprofits getting the gifts.

The 60 percent limit applies to the public charities to which most of us donate. Those are, in tax speak, the 501(c)(3) organizations. If a person is able and willing to give more than that, the excess contributions may be carried forward for up to five tax years.

But under the CARES Act, for the 2020 tax year a person who itemizes may give up to 100 percent of his or her AGI to qualified charities.

UPDATE, 7:15 p.m. Monday, Dec. 21, 2020: The latest coronavirus measure that, as noted in the Dec. 27 update a couple of paragraphs earlier, was signed into law on Dec. 27, 2020, also extends the 100 percent option for itemizing donors into 2021.

The decision to do this is made on a contribution-by-contribution basis. Unless an individual makes the election for any given qualified contribution, the usual 60 percent limit applies.

As with the CARES Act change that created the new deduction for non-itemizers, the increased Schedule A donation option also is limited to cash donations.

It also applies only to qualifying gifts made during calendar year 2020 to qualifying charitable organizations.

And those charitable organizations that don't qualify here are, once again, those made either to supporting organizations, DAFs and CRTs.

Corporations get bigger giving limit, too.
For business owners who want to help out, the CARES Act permits C Corporations to apply an increased limit of 25 percent of taxable income. This covers charitable contributions of cash they make to eligible charities during the 2020 calendar year.

The maximum allowable deduction is usually limited to 10 percent of a corporation's taxable income.

And as with the increase for itemizing individuals, this so-called Increased Corporate Limit (ICL) does not automatically apply. C Corporations must elect application of the ICL on a contribution-by-contribution basis.

Increased limits on business donations of certain food inventory.
An increased deduction limit also is available to businesses that choose to donate food inventory that is eligible for the enhanced deduction. This generally is for contributions for the care of the ill, needy and infants.

For contributions made in 2020, the limit for these contribution deductions is bumped from 15 percent to 25 percent.

Checking out food bank offerings_Michael Losch-KOMUnews via Flickr CC-cropped
Checking out food bank offerings. (Photo by Michael Losch-KOMUnews via Flickr CC)

For C Corporations, the 25 percent limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships and S corporations, the limit is based on their aggregate net income for the year from all trades or businesses from which the contributions were made.

A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements. Shorthand for all this is, consult your tax adviser.

Regular charitable donation rules still apply.
While all these changes should help qualifying donors and the groups that receive their generosity, some old rules still apply.

First, to count as a deductible donation for the 2020 tax year, your gifts must be made by Dec. 31. If you mail a check, a Dec. 31 postmark counts. A Dec. 31 transaction date also is OK with the IRS when donations are made by credit card.

Also, both individuals and businesses should follow recordkeeping rules. This usually means getting a receipt or acknowledgment letter from the charity before you claim the tax deduction, either on your Form 1040 under the $300 gift rule or on Schedule A.

In some cases, a cancelled check or credit card receipt also is sufficient in case the IRS has questions. But most charities routinely send receipts or letters early in the new year to all their donors. When you get that, put it with your other tax records.

Again, thanks for giving what you can in any way you can. And if you qualify for a tax break for your philanthropy, be sure to claim it.

You also might find these items of interest:

 

Coronavirus Caveat & More Information
In 2020, we're all dealing with extraordinary circumstances,
both in our daily lives and when it comes to our taxes.
The COVID-19 pandemic and efforts to reduce its transmission
and protect ourselves and our families means that,
for the most part, we're focusing on just getting through these trying days.

But life as we knew it before the coronavirus will return,
along with our mundane tax matters.
Here's hoping that happens soon!
In the meantime, you can find more on the virus and its effects on our taxes
by clicking Coronavirus (COVID-19) and Taxes.

 

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