Sorry to get you down, but COVID-19 has been a miserable experience for all Americans. However it is a great feeling to help people when they are down, and now is your chance. You even get a special tax break on your 2020 tax return for your generosity. A win-win in this time of despair.
To combat the negative economic impact of COVID-19, the federal government managed to pass legislation known as the CARES Act (Coronavirus Aid Relief and Economic Security Act). One portion of the Act increases the benefit to taxpayers that give to charity in 2020. This is the first time in the history of our great nation that the government has expanded charitable giving in response to a national emergency.
Prior to the CARES Act, individual taxpayers had to Itemize Deductions to get a charitable deduction. The problem is only 10% of taxpayers Itemize Deductions, so almost everyone got left out in the cold. The CARES Act changes all that because it allows a $300 charitable deduction for single taxpayers ($600 for married filing jointly) if they take the Standard Deduction. The charitable deduction is above the line which means it reduces your Adjusted Gross Income (AGI) which in turn lowers your taxable income. Awesome!
For those few and far between that Itemize Deductions, you get special treatment as well. Prior to the Act only 60% of AGI could be offset by charitable giving. The Act changes it to 100% so now you can drop your AGI to zero if your generosity allows. Since almost all people that Itemize Deductions are rich and hate paying taxes, it’s as good a time as ever to open up those wallets and purses.
The information we have discussed so far deals with individuals, but corporations also get special treatment. Prior to the Act corporations were permitted to take a business expense for charitable donations up to 10% of taxable income. In other words, if the company had a profit of $100,000 it could make a $10,000 donation and drop the profit to $90,000 which lowered taxable income. The Act bumps the amount up to 25% of taxable income, so let’s open up the coffers and help those in need.
I love America because we always come together in times of crisis and end up even stronger than before. Times sure are tough, but please reach deep because we must take care of each other. Brighter days are ahead, and your generosity today is a ray of light peeking through.
Joe Wright CPA PLLC provides the information in this blog as a general guide. Tax laws are extremely complex, and every taxpayer is unique. Some or all of this information may or may not apply to you. We provide simplified situations to clarify some of the major aspects and highlights of the topic at hand. Some of the language used is casual and may be misconstrued. Please make an appointment with us soon to discuss your particular circumstances.