Special charitable deduction for non-itemizers

[BrianB]

For the 2020 tax year people who take the standard deduction will be able to deduct up to $300 in cash (or check or CC) contributions to 501(c)(3) organizations.

This is from Kiplinger:

The CARES Act, among other coronavirus relief efforts, has instituted a provision allowing people to deduct $300 for charitable contributions. If you are married and filing jointly, your deduction is still limited to $300. Taxpayers can take this universal deduction no matter whether they itemize or take the standard deduction on their taxes.

Deductions under the CARES Act must be in cash (including checks and credit card payments) and given to a 501(c)(3) public charity. Contributions to non-operating private foundations, support organizations and donor-advised funds don’t fall under this new deduction. Because the CARES Act deduction is a universal above-the-line deduction, you can list your contribution as an adjustment to income on your taxes.

In short, with the CARES Act, if you donate up to $300 in cash to a qualified organization, your adjusted gross income will be reduced up to $300.

Another benefit of this provision is that you don’t need to include documentation when you file gifts $250 and under — just be sure to keep proof of cash receipts. All gifts exceeding $250 need to include the receipt or proper documentation when filing.

Will this continue to 2021 and beyond? Nobody knows for sure.

Will it also reduce MAGI for calculating ACA tax credits? None of the sources I could find answered this question, but it is an "above-the-line" reduction that reduces AGI, unlike Schedule A deductions.

One more reason to donate in this time when so many charities really need the help!

BrianB

 

[audreyh1]

Hmmm - we’ll be close with our regular memberships. Our other more substantial contributions are made via our DAF.

Thanks!

 

[Midpack]

Thanks, I hadn’t caught up with that.

 

[kaneohe]

.................................

Will it also reduce MAGI for calculating ACA tax credits? None of the sources I could find answered this question, but it is an "above-the-line" reduction that reduces AGI, unlike Schedule A deductions.

........................................................

BrianB

https://www.healthcare.gov/income-and-household-information/income/#magi

Since AGI is the starting point and this contribution "adjustment" reduces AGI,
then MAGI should also be reduced.

 

[BrianB]

Yes it seems that MAGI would be reduced also, but as you noted there are already several adjustments to AGI to calculate MAGI (adding back non-taxable social security and tax free interest, for example). This could be another one, I can't find confirmation either way

I expect clarification will come out as tax season nears.

 

[Gumby]

Here is the relevant part of the CARES Act. Looks like it continues after 2020:

SEC. 2104. ALLOWANCE OF PARTIAL ABOVE THE LINE DEDUCTION FOR CHARITABLE CONTRIBUTIONS.
(a) In General.—Section 62(a) of the Internal Revenue Code of 1986 is amended by inserting after paragraph (21) the following new paragraph:


“(22) CHARITABLE CONTRIBUTIONS.—In the case of taxable years beginning in 2020, the amount (not to exceed $300) of qualified charitable contributions made by an eligible taxpayer during the taxable year .”.

(b) Definitions.—Section 62 of such Code is amended by adding at the end the following new subsection:


“(f) Definitions Relating To Qualified Charitable Contributions.—For purposes of subsection (a)(22)—

“(1) ELIGIBLE TAXPAYER.—The term ‘eligible taxpayer’ means any individual who does not elect to itemize deductions.

“(2) QUALIFIED CHARITABLE CONTRIBUTIONS.—The term ‘qualified charitable contribution’ means a charitable contribution (as defined in section 170(c))—

“(A) which is made in cash,

“(B) for which a deduction is allowable under section 170 (determined without regard to subsection (b) thereof), and

“(C) which is—

“(i) made to an organization described in section 170(b)(1)(A), and

“(ii) not—

“(I) to an organization described in section 509(a)(3), or

“(II) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in section 4966(d)(2)).

Such term shall not include any amount which is treated as a charitable contribution made in such taxable year under subsection (b)(1)(G) or (d)(1) of section 170.”.

(c) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2019.

 

[kaneohe]

Yes it seems that MAGI would be reduced also, but as you noted there are already several adjustments to AGI to calculate MAGI (adding back non-taxable social security and tax free interest, for example). This could be another one, I can't find confirmation either way

I expect clarification will come out as tax season nears.

yes, you can't be sure until this is clarified. Interesting to note tho that the things you add back seem to be specific income items but there don't seem to be any "adjustments" (Sch 1 , pt II https://www.irs.gov/pub/irs-pdf/f1040s1.pdf) which is where I believe the charitable donation will be.

 

[athena53]

This provision of CARES didn't really get the publicity it should have. One thing to note, from the Kiplinger Tax Letter, is that the law is vague about what it means for couples filing jointly. The $300 limit may be "per return" so a married couple filing jointly (which most do) would be eligible to deduct only $300, not $600. I did a subsequent search on this and the issue hasn't really been resolved.

 

[cathy63]

Yes it seems that MAGI would be reduced also, but as you noted there are already several adjustments to AGI to calculate MAGI (adding back non-taxable social security and tax free interest, for example). This could be another one, I can't find confirmation either way

I expect clarification will come out as tax season nears.

yes, you can't be sure until this is clarified. Interesting to note tho that the things you add back seem to be specific income items but there don't seem to be any "adjustments" (Sch 1 , pt II https://www.irs.gov/pub/irs-pdf/f1040s1.pdf) which is where I believe the charitable donation will be.

Here is the draft 1040 for 2020: https://www.irs.gov/pub/irs-dft/f1040--dft.pdf

Note that there's a new line 10b "Charitable contributions if you take the standard deduction. See instructions". You will add this to the adjustments from Sch 1, which are on 10a, and then you will subtract that sum from your total income on line 9 to get line 11, which is your AGI.

Here are the draft insructions for form 8962 for 2020: https://www.irs.gov/pub/irs-dft/i8962--dft.pdf, which contain the worksheet for calculating your MAGI. The instructions for that are:

1. Enter your adjusted gross income (AGI)* from Form 1040, 1040-SR, or 1040-NR, line 11
2. Enter any tax-exempt interest from Form 1040, 1040-SR, or 1040-NR, line 2a
3. Enter any amounts from Form 2555, lines 45 and 50
4. Form 1040 or 1040-SR filers: If line 6a is more than line 6b, subtract line 6b from line 6a and enter the result
5. Add lines 1 through 4. Enter here and on Form 8962, line 2a

These are drafts, but it's clear that the IRS' current thinking is that the charitable deduction goes directly on the 1040, is excluded from the AGI, and is not added back to calculate the ACA MAGI.

 

[BrianB]

Thanks to all who dug further into this.

Athena: The Kiplinger article I quoted did refer to a $300 limit per return (same total amount for single or MFJ), but Gumby's quote of the actual law refers to "Eligible Taxpayer" and "Individual". Yes this does need to be confirmed.

Cathy: That would be the best outcome - a reduction in AGI with no add-back for MAGI. I hope the final rule defines it the same way.

I just get giddy with excitement as tax season approaches!

BrianB

 

[USGrant1962]

Thanks for the heads up. I didn't know about this aspect of the CARES Act.

Though I do wonder where the $300 number came from. It is really too small to make a measurable impact on the charity sector of the economy. Seems to me it would have been logical to make the deduction up to $1,200 per person - hence encouraging people to redirect their stimulus checks. But there was little logic in the rushed CARES Act.

 

[OldShooter]

... It is really too small to make a measurable impact on the charity sector of the economy. ...

Agreed, but it is a nice gift for those of us who are using QCDs for our charitables. Doing QCDs lets us use the standard deduction which is substantially larger than the non-charitable deductions we can gather. So we make a profit on that. But there are always popcorn charitables/small checks that we can't/don't use QCDs for, so now we can deduct $300 or $600 of those.

 

[donheff]

Agreed, but it is a nice gift for those of us who are using QCDs for our charitables. Doing QCDs lets us use the standard deduction which is substantially larger than the non-charitable deductions we can gather. So we make a profit on that. But there are always popcorn charitables/small checks that we can't/don't use QCDs for, so now we can deduct $300 or $600 of those.

Yeas, I use QCDs for my regular charitable giving. But I vaguely remember recently giving some worthy cause $100 by credit card. I forgot to keep track of it so I will have to go back and see if I can find it to see if it qualifies.

 

[audreyh1]

We’re not able to pay for some of our charitable organization memberships through our anonymous DAF, so this will be handy.

 

[braumeister]

We’re not able to pay for some of our charitable organization memberships through our anonymous DAF, so this will be handy.

The vast majority of our DAF donations are anonymous, but you can set the acknowledgement individually. We have a few where we let them know who is making the donation, just for this purpose.

 

[RunningBum]

The vast majority of our DAF donations are anonymous, but you can set the acknowledgement individually. We have a few where we let them know who is making the donation, just for this purpose.

I think the point is the charitable organization not being able to receive from the DAF, not the anonymity.

 

[braumeister]

I think the point is the charitable organization not being able to receive from the DAF, not the anonymity.

I don't understand that. If the charity can't receive a direct transfer, the DAF mails them a check.

 

[RunningBum]

I don't understand that. If the charity can't receive a direct transfer, the DAF mails them a check.

Only to a charity that meets their criteria. Maybe she gives to some smaller ones the DAF doesn't recognize.

Also, she said

We’re not able to pay for some of our charitable organization memberships

I don't think a DAF can be used to get anything in return. It can't even be used to fulfill pledges, but there are probably ways around that.

At this point I'll let audrey clarify.

 

[HtownRose]

Thank you for this reminder! I wanted to do this when I heard about it months ago but had forgotten.

 

[audreyh1]

The vast majority of our DAF donations are anonymous, but you can set the acknowledgement individually. We have a few where we let them know who is making the donation, just for this purpose.

So that you get your membership cards and benefits?

Have you tried paying for your annual PBS benefit that way? I’m not sure it works. The DAF is contributing, not you anymore.

 

[audreyh1]

Only to a charity that meets their criteria. Maybe she gives to some smaller ones the DAF doesn't recognize.

Also, she said

I don't think a DAF can be used to get anything in return. It can't even be used to fulfill pledges, but there are probably ways around that.

At this point I'll let audrey clarify.

Yes, I was specifically talking about memberships where there are some benefits like access to a facility, or a magazine/journal, etc., but the membership cost is still allowed as a 100% charitable deduction.

 

[mrfeh]

I don't think a DAF can be used to get anything in return.

I know almost nothing about DAFs, but I would think this is true. If something is being received, I don't see how it can be called a donation.

 

[audreyh1]

I know almost nothing about DAFs, but I would think this is true. If something is being received, I don't see how it can be called a donation.

In the case of memberships, certain benefits are allowed, such as free access to a facility owned by the charity, or a journal/magazine owned by the charity. The membership is still 100% deductible. However, I don’t understand how a DAF could pay for such memberships.

However, if you attend a charity fundraising event say, that includes a dinner and/or entertainment, only a portion of the cost would be a charitable deduction. Same for a membership pledge drive that sends you some item. This is explicitly disallowed for a DAF.

 

[jj]

This new (re-introduced) deduction is useful for us in two ways.

1. Our Vanguard Donor-advised fund (DAF) has a minimum of $500 per donation and there are some charities we don't want to support to that level. This enables these smaller donations to be deducted.

2. For memberships (like Audrey says) where there are membership cards involved and the whole subscription amount can't be deducted, these can't be done with a DAF.

 

[gerntz]

So does this mean if you give the make the maximum QCD of $100K, this year you can donate$100,300 tax-free?