Does the New $300 Cares Act Charitable Contribution Deduction Help Me With My Taxes?

Spoiler alert: Like many things in personal finance and taxes the answer is it depends. And even when it does help, it won’t be much help for most of us.

First, some background on deducting charitable contributions.

Before the CARES Act was passed this year (2020), taxpayers generally had one option to deduct charitable contributions. They had to itemize instead of taking the standard deduction. Most of us take the standard deduction because it gives us a bigger deduction than itemizing. A bigger deduction can mean less taxes paid and often a bigger refund.

The CARES Act permits eligible individuals to deduct $300 of qualified charitable contributions as an “above-the-line” deduction. So you can take this deduction without itemizing. To be eligible, these must be cash contributions (cash, check, debit, or credit). And the contributions must be to an organization that the IRS recognizes as eligible for deductible contributions, typically a charitable organization. This deduction applies to Federal taxes and continues after 2020.

What documentation or proof do I need to deduct charitable giving?

If you give $250 or more to one entity, you must receive and keep documentation from the organization acknowledging your contribution. Even if it’s less than $250, the IRS still says you should have documentation. But things like bank records and credit card records can suffice.

But will donations to charity help my tax situation?

For many, it will not help. You shouldn’t give money just to get a tax deduction. If you are at the 10% marginal tax rate, giving $300 at best saves $30 in taxes. That is not a good return. The reason to give should be that it is the right thing for you to do and you can afford it.

Every tax situation is different. If your tax situation includes receiving Earned Income Tax Credit and Additional Child Tax Credit, this may not help reduce your taxes or increase your refund. Here is one example: if you are married, not anyone else’s dependent, and file a joint tax return and your household gross income for 2020 is $24,800 a year or less– this deduction does not help you. You have already maxed your deductions for the year simply by being married and receiving the 2020 standard deduction of $24,800.

What if I’m not sure if it will help?

If you aren’t sure and have someone who prepares your taxes, then ask them. My guess is they’ll say the same thing I am going to say. And that is when you give money, keep the receipts and proof (the proof we talked about above). And then when you go to do your tax returns either bring it with you to your tax professional (or send it) or make sure you enter it in your tax software. Better to provide more information than less when it may help your tax situation.

If you would like to read more about the $300 charitable contribution deduction, I suggest going to IRS.gov and reading their tax tips.

Update and Clarification: The IRS has clarified that when filing a Married Filing Separate (MFS) tax return, the maximum charitable contribution deduction for non-itemizers is $150 for 2020. For other individuals and for Married Filing Jointly it is $300 for 2020. Also, for 2021 the Consolidated Appropriations Act increased this charitable contribution deduction for 2021.