People have many compelling reasons to donate money this Giving Tuesday if they can afford it, but a practical tax code change that was passed earlier this year offers another incentive.
The so-called "Universal Charitable Deduction" allows non-retailers to claim a tax break of up to $ 300 when they file their taxes in 2021.
Let's sum that up.
Charitable donations are tax deductible, but taxpayers can only claim the deduction from their federal income taxes if they state the expenses that are eligible for deduction. In addition to charitable donations, these expenses include medical expenses, mortgage interest, and state and local taxes (up to $ 10,000).
However, it only makes sense to make tax savings if those expenses are more than the standard allowance, which will reduce a tax burden by a set amount. For the upcoming tax season, the standard deduction is $ 24,800 for married couples filing together and $ 12,400 for individual taxpayers
More than 87% of tax returns filed last year received the standard withholding, according to statistics from the Internal Revenue Service.
The Universal Charitable Withholding allows taxpayers to claim the Standard Withholding and then take a depreciation of up to $ 300 on top of any eligible donations they make on or before December 31, 2020. The deduction was part of the deduction. A CARES bill worth $ 2.2 trillion was passed in March.
For example, suppose a household has taxable income of $ 75,000 after the standard deduction is applied. The $ 300 deduction will save $ 36 on your income tax bill, said April Walker, senior manager of tax practices and ethics at the American Institute of Certified Public Accountants, a professional organization.
A household with a taxable income of $ 100,000 could save $ 66 by their calculations by claiming the entire deduction above the line.
"There's no motivation to give. It gives people the ability to give more," said Rick Cohen, spokesman and chief operating officer for the National Council of Nonprofits. "Right now, every dollar counts. It doesn't matter if it's 300 , three or $ 30,000. Nonprofits need every penny now. "
Across the country, donations have "been on a roller coaster ride this year," he said. They fell in the first quarter as COVID-19 weighed on the economy, but then rebounded in the second quarter.
In the first half of the year, donations increased 7.5% year over year, partly due to an increase in contributions below $ 250. This emerges from the Fundraising Effectiveness Project run by the Association of Fundraising Professionals.
The third quarter donation estimates are pending, but Cohen said, "What we see and hear anecdotally is the roller coaster has come back down" as the pandemic continues and some potential donors question whether they can afford it to give something.
"When you have that kind of insecurity, it's pretty understandable to be a little less inclined to give as much as you would," he said.
People looking to take the $ 300 deduction should remember a few points about the fine print, Walker told AICPA.
The same $ 300 depreciation applies whether it's a single taxpayer or a married couple filing an application together, she said.
The deduction applies to monetary donations, not to specific donations – like a pile of clothes from a cleaned attic. This also does not apply to share donations, said Walker.
If a taxpayer donates $ 250 or more at one time, he or she will need a written gift receipt from the organization that received the gift at the same time. This is a pre-existing IRS rule for reporting requirements, Walker explained.
Ultimately, according to Walker's calculations, the tax savings can be modest. However, donations are not about a tax game. "It's a little added incentive to make at least $ 300 in donations," she said.
IRS Commissioner Charles Rettig recently reminded taxpayers of the provision, saying, "Our country's charities are working to help those affected by COVID-19 and many deserving organizations can take advantage of any help they can get."