Charitable givers get special relief in 2020

T axpayers who want to ramp up their charitable giving in December have two new tax breaks. These measures, which apply only for 2020, were enacted to help blunt the impact on charitable giving from a 2017 tax reform law and the pandemic.

A deduction for non-itemizers

One tax break allows non-itemizers to deduct up to $300 in charitable cash contributions made to 501(c)(3) tax-exempt organizations. For 2020 only, individuals who do not itemize on Schedule A can take both the standard deduction and an above-the-line deduction for up to $300 in cash donations. The $300 write-off is per return; couples who file jointly can deduct only $300, not $600. Any amount that exceeds the $300 limit may not be carried forward to future tax years.

Gifts to donor-advised funds and private non-operating foundations (those that make grants to charities but don’t operate charitable programs) are excluded.

Cash donations include gifts by cash, check, electronic fund transfer or payroll deduction.

Many lawmakers want to see the charitable contribution write-off expanded further. A bipartisan group of House and Senate lawmakers would like to make the above-the-line charitable deduction permanent and to increase the amount. For example, one legislative proposal would hike the write-off to $600 for single filers and $1,200 for joint filers.

Similar proposals have been circulating around Congress since enactment of the 2017 tax reform law, but the pandemic and the corresponding economic recession have put more of an emphasis on expanding incentives for charitable giving.

Charitable deduction cap lifted

The second change helps people who donate lots of cash to charities this year. In contrast with the $300 deduction, this provision applies only to taxpayers who itemize on Schedule A.

Usually, the amount of charitable cash contributions you can claim is limited to 60% of your adjusted gross income, but that limit is suspended and you can deduct cash donations of up to 100% of AGI made in 2020. Any cash donations over that amount can be carried over for up to five years. As with the new, temporary $300 above-the-line deduction, gifts to donor-advised funds and private non-operating foundations are excluded under the new larger limit.

Note that the tax relief applies only to charitable cash contributions made this year and deducted on Form 1040 or 1040SR for 2020. Carryovers of excess charitable contributions from prior years to 2020 don’t get the break. They are still subject to the general 60%-of-AGI limit.