2020 has been a tough year for everyone. Between COVID-19, lockdowns, and kids learning online from home, 2020 has worn everyone out. The unemployment rate is high and people are having difficulty feeding themselves and their families. Food banks are unable to keep up with the sudden rise in the need for food supplies.
Non-profits are doing an amazing job during this difficult time. But recent changes in the tax code have disincentivized charitable contributions. The Tax Cuts and Jobs Act (TJCA) that was passed into law in 2017 nearly doubled the standard deduction and eliminated or limited many itemized deductions.
Since many taxpayers don’t itemize anymore because of the high standard deduction, the after-tax cost of donating to charitable causes has gone up by around 7%. Not surprisingly, charitable giving has gone down. If you are a non-profit, the timing could not have been worse.
CARES Act – $300 Charitable Contribution Deduction For 2020 and upto $600 for 2021
The CARES and the 2nd COVID relief bill aim to solve this problem and provide an incentive for people to make a charitable contribution. In 2020, you can contribute up to $300 (for both individuals and filing jointly with spouse) and in 2021, you can contribute up to $600 if you are married and filing jointly, to a non-profit and deduct your contribution even if you don’t itemize. You can still claim your standard deduction. The charitable contribution will ultimately reduce your tax bill. You must make your charitable contribution by December 31, 2020, to claim this deduction on your 2020 taxes. Note that these contributions must be cash contributions and not car, clothing, food, or furniture.
Be Informed About The Non-Profits You Contribute Money To
Before giving any money to a non-profit, check out the following two websites to understand if your non-profit spends its money as it claims.
Look for non-profits that spend more than 80% of their funds on program expenses. Administrative and fundraising expenses should be a small portion of the expenses.