Individuals have loads of compelling causes to donate cash this Giving Tuesday if they will afford it, however a helpful tax code tweak enacted earlier this yr gives another incentive.

The so-called “common charitable deduction” permits non-itemizers to say a tax break of as much as $300 once they file their taxes in 2021.

Let’s break that down.

Charitable donations are tax deductible, however taxpayers can solely declare the deduction on their federal revenue taxes in the event that they’re itemize the bills which are eligible for deductions. Together with charitable donations, these bills embody medical bills, mortgage curiosity and state and native taxes (as much as $10,000).

Nevertheless it solely makes tax-savings sense to itemize if these bills complete greater than the usual deduction, which reduces a tax invoice by a set quantity. This upcoming tax season, the usual deduction might be $24,800 for married {couples} submitting collectively and $12,400 for single taxpayers

Greater than 87% of tax returns filed final yr took the usual deduction, according to Internal Revenue Service statistics.

The common charitable deduction permits taxpayers to say the usual deduction, after which additionally take a write-off of as much as $300 on high of that for the eligible donations they make on or earlier than Dec. 31, 2020. The deduction was one a part of the $2.2 trillion CARES act passed in March.

Suppose a family has $75,000 in taxable revenue after making use of the usual deduction. Tacking on $300 deduction will shave $36 from the revenue tax invoice, stated April Walker, lead supervisor for tax observe and ethics on the American Institute of Licensed Public Accountants, an expert group.

A family with $100,000 in taxable revenue might save $66 by claiming the entire above-the-line deduction, in accordance with her calculations.

“It’s not motivation to provide. It’s what provides folks the flexibility to provide extra,” stated Rick Cohen, spokesman and chief working officer for the Nationwide Council of Nonprofits. “Proper now, each greenback counts. It doesn’t matter if it’s $300, three {dollars} or $30,000. Nonprofits want each penny proper now.”

Throughout the nation, donations have “been on a little bit of rollercoaster this yr,” he stated. They dipped within the first quarter as COVID-19 beared down on the financial system, however then rebounded within the second quarter.

By the primary half of the yr, donations have been up 7.5% in comparison with the identical level final yr, partly boosted by a spurt in contributions underneath $250, in accordance with the Fundraising Effectiveness Undertaking, which is a carried out by the Affiliation of Fundraising Professionals.

Donation estimates for the third quarter are pending, however Cohen stated, “what we’re seeing and listening to anecdotally is the rollercoaster has gone again down” because the pandemic wears on and makes some would-be donors query whether or not they can afford to provide.

“When you’ve got that type of uncertainty, it’s fairly comprehensible to be somewhat bit much less inclined to provide as a lot as you’ll,” he stated.

Individuals who wish to take the $300 deduction ought to bear in mind a few factors in regards to the positive print, stated Walker, with AICPA.

The identical $300 write-off applies whether or not it’s a single taxpayer or a married couple submitting collectively, she stated.

The deduction applies to cash contributions, not tangible donations — like a pile of garments from a cleaned out attic. It additionally doesn’t apply to donations of inventory, Walker famous.

If a taxpayer donates $250 or extra at one single time, they’ll want a contemporaneous written reward acknowledgment from the group that acquired the reward. That is pre-existing IRS rule on reporting necessities, Walker defined.

On the finish of the day, the tax financial savings could also be modest by Walker’s calculations. However donations aren’t a few tax play. “It’s a little added incentive to make at the very least $300” in donations, she stated.

IRS Commissioner Charles Rettig lately reminded taxpayers in regards to the provision, saying, “Our nation’s charities are struggling to assist these affected by COVID-19, and plenty of deserving organizations can use all the assistance they will get.”


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