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If you gave money related to the COVID-19 pandemic in 2020, or just made regular monthly contributions to your favorite local charity, you may be eligible for a special deduction this tax season.
The CARES Act, passed last spring in response to the pandemic, includes a special $300 tax deduction for cash donations to qualifying organizations made before Dec. 31, 2020. Both individual and joint filers can deduct a maximum of $300 in donations.
The best part? The credit is designed specifically for the 87% of filers who take the standard deduction, so you can benefit even if you don’t itemize. In prior tax years, only those who itemized could deduct charitable contributions.
Here’s what you need to know about claiming this deduction before you file:
What is the Tax Deduction?
This special deduction is an “above-the-line” deduction, which means claiming it lowers both your adjusted gross income and your taxable income.
That doesn’t mean you’ll get an additional $300 back on your return. The $300 deduction can help reduce the amount of income that you owe taxes on, but will vary based on your income and other factors in your return. “It’s not going to make a humongous difference in your tax bill,” says Michele Cagan, CPA and author of “Debt 101.” “But why give the IRS even $10 more than you need to?”
As an example, a single filer with a $54,000 income who claims a full $300 in cash donations can increase their refund (or reduce their tax bill) by about $66 total.
If you itemize your tax deductions, you can still deduct charitable donations on your 2020 returns as well. The IRS offers additional guidance on charitable contribution deduction changes for itemizers under the CARES Act.
But this deduction under the CARES Act is specifically for people who choose to take the standard deduction when filing. That accounts for nearly nine in 10 people, according to the IRS.
You may deduct up to the following amounts in cash donations, depending on how you file:
- $300: single or head of household
- $300: married filing jointly
- $150: married filing separately
And remember, $300 is a maximum: If you donated $200, $100, $50, or any other amount to charity in 2020, you can claim that amount as a deduction — up to $300.
Are Your Donations Eligible?
Cash donations of up to $300 made to an eligible organization in tax year 2020 qualify for the special deduction.
This includes donations you make with cash or by check, debit card, or credit card. Donations of property, securities, or household items do not qualify. In other words, you may claim money you donated to your local food bank, but not the clothes you gave to Goodwill.
Keep documentation of any cash donations you make, whether in the form of a receipt, thank you letter, or even email acknowledgement from the organization.
You should also make sure the organization you donated to is eligible before claiming the deduction. “It has to be a qualified charitable organization,” Cagan says. “It can’t be a GoFundMe page; it has to be a registered charity with the IRS.”
The IRS has a Tax Exempt Organization Search tool you can use to check the status of any organization you donated to in 2020.
Keep Proof of Your Donation
Make sure you have documentation of each cash donation you claim. For donations under $250, your own records, such as a bank or credit card statement, should suffice. But you’ll need a receipt from the charity for donations of $250 or more, Cagan says.
“Since most people, especially this year, are probably making donations online, they’re probably going to get a response email, so that would count,” she says. “Anything you get from them that acknowledges you made a donation counts as proof.”
The IRS has a full rundown of qualifying records for your cash donations.
Looking Ahead: Tax Year 2021
Initially, this deduction was designed as a one-year tax break. For tax year 2020, the deduction is $300 regardless of how you file under the standard deduction (whether individual or jointly).
But the latest stimulus bill in December extended and expanded the deduction. Any cash donations you make this year may also be eligible when you file next spring. Plus, for tax year 2021, individuals taking the standard deduction can again deduct up to $300 in charitable cash donations, and joint filers may deduct up to $600 in cash donations.