As Tax Day approaches, there is good news for charities and donors in the year-end spending package passed by Congress, the CARES Act. Following special tax law changes made earlier this year, cash donations of up to $300 made before December 31, 2020, are now deductible when people file their taxes in 2021. In addition, corporate contribution limits have also been increased.
“Our nation’s charities are struggling to help those suffering from COVID-19, and many deserving organizations can use all the help they can get,” said IRS Commissioner Chuck Rettig. “The IRS reminds people there’s a new provision that allows for up to $300 in cash donations to qualifying organizations to be deducted from income. We encourage people to explore this option to help deserving tax-exempt organizations – and the people and causes they serve.” This new provision will help charities, but also our wonderful donors who have made smaller contributions throughout 2020.
Changes Made To Deductions
The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted last spring, includes several temporary tax changes helping charities, including the special $300 deduction designed especially for people who choose to take the standard deduction, rather than itemize their deductions. Nearly 9 in 10 taxpayers now take the standard deduction and could potentially qualify for this new tax deduction.
Under this new change, individual taxpayers can claim an “above-the-line” deduction of up to $300 for cash donations made to charity during 2020. This means the deduction lowers both adjusted gross income and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations, like MPFIC. This new tax provision will allow many of our donors to deduct their donations from both their adjusted gross income and taxable income.
Why The Tax Change Is Important
Why is the new above-the-line deduction important? Under the 2017 tax law, the standard deduction was increased so much that fewer people were itemizing deductions, including gifts to charity. The above-the-line deduction allows non-itemizers to take a charitable deduction too. If a married couple filing jointly take the standard deduction in tax year 2021 and give $600 to charity, they’d get the $600 tax break in addition to the standard deduction ($12,550 for individuals and $25,100 for joint filers). If they’re in the 10% tax bracket, it would save them $60 in taxes. If they’re in the 37% tax bracket, the savings would be worth $222. It is important to note that an above-the-line deduction can also help because it reduces your adjusted gross income, which can then mean you qualify for other tax breaks. For corporations, the 10% limitation would be increased to 25% of taxable income.
Before making a donation, it is best to check the special Tax Exempt Organization Search (TEOS) tool on IRS.gov to make sure the organization you are donating to is eligible for tax-deductible donations. To search for our charity, enter our name into the TEOS tool, “Maryam Parman Foundation for Injured Children.” Our tax ID number is 82-3765508. Each time you donate to MPFIC, you receive a receipt which you should keep for your accountant. You may always reach out to us if you need another copy of your receipt or have any questions regarding your donations.
Corporation Tax Deductions
In addition, the CARES Act includes other temporary provisions designed to help charities after the difficult year that was 2020. These include higher charitable contribution limits for corporations, individuals who itemize their deductions, and businesses that give food inventory to food banks and other eligible charities. With higher charitable contribution limits for corporations and the new above the line deductions, donations to charities went further in 2020 than years before.
You may also note that the IRS has extended Tax Day to May 17, 2021 from April 15, 2021, giving you an additional month to file your tax returns. Check the IRS website for official and up-to-date information.