Over half of Americans, 55%, gave to charities last year, with about one in four donating up to $500, according to a recent survey.
Nearly half, 45%, of the over 3,800 U.S. adults surveyed by Invisibly last month reported that the Covid-19 pandemic played a role in the amount they donated to charities last year. About one in five respondents said the pandemic inspired them to be more generous than in the past, while about 25% reported that Covid prevented them from donating more. Overall, there’s been about $20.6 billion donated globally to Covid-19-related causes, according to Candid, which has been tracking the issue.
For those who were able to donate, there is good news: Donating to a nonprofit over the past year may actually net you a tax break.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows Americans to deduct up to $300 from their 2020 taxes for charitable contributions. The CARES Act stipulated this was an above-the-line deduction, which means you don’t have to itemize to claim the deduction, so more Americans can take advantage. Additionally, the deduction lowers both adjusted gross income and taxable income.
This is a big update since the Tax Cuts and Jobs Act of 2017 (TCJA) changed the rules so fewer taxpayers benefitted from itemizing their taxes and, as a result, more use the standard deduction ($12,400 for individuals and $24,800 for married couples filing jointly). If that’s the case, you didn’t get a direct tax benefit from your charitable contributions.
Now the rules have shifted again so that individuals will get a deduction for their charitable contributions whether they’re itemizing or not, says Dan Herron, a CPA and certified financial planner with California-based Elemental Wealth Advisors. And the CARES Act also made 100% of your charitable donations deductible, up from the typical 60% cap on your total contributions.
The CARES Act deduction lowers both adjusted gross income and taxable income, so nearly nine out of 10 taxpayers who take the standard deduction could qualify, according to the IRS.
This deduction only applies for cash donations made in 2020 to 501(c)(3) nonprofits. Donations of physical goods as well as contributions to donor advised funds or organizations that act to support charities do not qualify. “So if you drop off a bag of clothes to Goodwill, that doesn’t qualify. It has to be by check, cash or credit card,” Herron says.
If you did make any cash donations to qualifying organizations last year, Herron says to add everything together and either use that information when you’re doing your tax forms or submitting documentation to your tax preparer. And hold onto any letters or receipts from the nonprofit.
“A letter confirming receipt with a date on it from the charity is going to be your ace in the hole,” Herron says. “If you ever get audited, the IRS is going to ask you for a confirmation.” Credit card statements can also work as well, he adds.
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