How Does the CARES Act Incentivize Charitable Donations?

‘Tis the season for giving. With gift-giving holidays and end-of-year charitable donations, the month of December has become the unofficial Month of Giving.

For 2020 and future years, a new tax law that is part of the CARES Act provides an incentive to give to charity. Under this new law, you can claim a $300 deduction on your tax return for a donation to a public charity. The deduction is limited to $300 regardless of whether you file as an individual or a married couple.

Haven’t charitable donations always been deductible?

You may be asking yourself why this is important because charitable donations have always been deductible. You are correct about charitable donations generally being deductible, but those deductions were only claimed in the past as an itemized deduction. An itemized deduction is only beneficial if the total of all itemized deductions exceed your standard deduction.

The Tax Cuts and Jobs Act of 2017 (“TCJA”) doubled the available standard deduction for all taxpayers. One of the results of the doubling of the standard deduction is that itemized deductions became less valuable to taxpayers. Official numbers are not yet available, but it is estimated that the TCJA reduced the percentage of taxpayers who would have claimed itemized deductions in 2019 from 31.1% to 13.7%.

Donate and deduct for 2020

Because the TCJA reduced the benefit of itemized deduction by providing a much larger standard deduction, charities have experienced a reduction in donations. The global pandemic has further caused a reduction in donations to many charitable organizations. Although this new tax deduction is not substantial in size, it may have an overall great impact for local charities by allowing all taxpayers (not just those who customarily itemize deductions) to receive a tax deduction for donating to their favorite charities.

Be sure to make your donation by cash, check or credit card (not via stocks or assets) and save the receipt or acknowledgement letter from the charity.

Attorney R. Nicholas Nanovic is an Accredited Estate Planner^®, serving as chair of Gross McGinley’s Wills, Trusts & Estates team and on the Tax Law team.