The tax reform bill that passed in 2017 essentially doubled the standard deduction for individual and joint tax filers. One of the most substantial consequences of that change was that the percentage of taxpayers who itemize their deductions went from around 35% to 6%. Though the vast majority of people saw their tax burden go down, it also meant that over 95% of taxpayers could no longer write off their gifts to charity.
The CARES Act created two temporary changes to the tax treatment of such donations. One is a universal deduction targeted primarily at the 90+% of standard deduction taxpayers, and the other is meant to incentivize the remaining high-income givers and corporations.
For the over 90% of people who no longer itemize their charitable giving, the CARES Act will allow these individual taxpayers to deduct donations to charity of up to $300 on their 2020 federal tax return, even though they take the standard deduction. Married-filing-jointly taxpayers will get an above-the-line deduction of up to $600.
For those donors who are still able to itemize their deductions, and therefore directly write off gifts to charity, the current deduction cap is 60% of adjusted gross income. Corporations are able to deduct charitable donations up to 10% of taxable income.
The CARES Act lifts these caps to 100% for individuals and joint filers, while corporations will see their cap lifted to 25% for 2020. These are truly substantial changes to the tax treatment of donations.
The window for taking advantage of these changes closes on December 31, 2020.
This information is not intended as legal or tax advice. For such advice, please consult an attorney or tax advisor. References to tax rates include federal taxes only and are subject to change. State law may further impact your individual results.