Take-Away: An important reminder is that for 2020 only, a cash gift of $300 to charity may be deducted even if the donor claims the standard deduction on their 1040 income tax return.

Background: The CARES Act, to assist ailing charities, created a one-year exception from normal income tax rules which permits a cash gift of $300.00 to qualifying charitable organizations This legislation is designed especially for individuals who choose to take the standard income tax deduction, rather than itemize their income tax deductions. That means that about 87% of all taxpayers who no longer itemize their income tax deductions (based on 2018 filing statistics) can use this tax deduction. There are some specific rules to keep in mind if a $300 cash gift is to be made to charities this year, as the IRS reminds us in IR-2020-264 (November 2020.)

  • Effective Date: The donation must be made before December 31, 2020.
  • Who May Claim the Deduction: The $300 charitable income tax deduction is per tax return, not per person. Consequently, a married couple filing jointly will only be able to claim a $300 tax deduction on their jointly filed return, not $600.
  • Above-the-Line: The donation to the charity is reported above-the-line, which lowers both the reported adjusted gross income and taxable income, which translates into income tax savings for those who make the charitable donation.
  • Qualifying Charitable Organization: Not all charities are tax-exempt. Therefore, if there is any doubt, check the Tax Exempt Organization Search tool on IRS.gov to confirm that the charity is eligible to receive the $300 cash gift. Another source to ascertain tax exempt status of the prospective charitable donee is Treasury Publication 526.
  • Excluded Organizations: Despite being tax exempt organizations, neither supporting charitable organizations nor donor advised funds will qualify for this income tax deduction, (much like they are ineligible to receive a qualified charitable distribution, or QCD, from an IRA.)
  • Cash Donations: Donations made by check, credit card or debit card will each qualify as a cash Excluded from this special charitable deduction are gifts of securities, household items (e.g. gifts to Goodwill) and other property.
  • Recordkeeping: The donor must keep their records of the charitable gift. The includes retaining a cancelled check or credit card receipt. The donor should also have in his or her possession a receipt from the charity prior to filing their 2020 1040 income tax return on which the deduction is claimed.

Other Rule Changes: In addition to the one-time $300 deductible gift to a charity by a non-itemizer, the CARES Act also encouraged charitable giving by establishing higher limits for charitable giving by corporations and individuals who itemize the income tax deductions, e.g.. 100% of an individual’s adjusted gross income may be given in the form of cash gifts. Businesses are also encouraged to give food inventory to food banks and other eligible charities. See IRS.gov/Coronavirus.