When you’re filing your taxes, don’t overlook a new charitable contributions tax break that allows you to discount $300 from your taxable income even if you already take the standard deduction. Because it’s new and an above-the-line deduction, it’s easy to overlook—especially if you’re a typical W-2 employee who tends to file taxes on autopilot.
What is the charitable contributions deduction?
In response to COVID, the CARES Act established a new $300 deduction for charitable giving, for either individuals or joint filers in the 2020 tax season (found on line 10b on the Form 1040). A year-end legislative package also extended this tax break into the 2021 year, allowing those who are married and filing jointly to each take a $300 deduction, for a total of $600.
The key thing here is that this is an above-the-line deduction. Normally, charitable contribution tax breaks require you to itemize your deductions one-by-one, but 87% of filers take the standard deduction, and thus miss out on charitable giving tax breaks. The reason is that the flat standard deduction is usually the better option for lowering your overall taxable income, if not more convenient than itemizing (the deduction is $12,400 for single filers and $24,800 for married-filing-jointly). In this case, however, you can claw back some taxes on money donated to charity, even with the standard deduction.
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Some restrictions apply
The deduction applies only to donations made in cash (currency, credit or debit cards, checks, electronic transfers), which means you can’t claim clothing you might give away to Goodwill or non-perishables to a food pantry. Nor can you deduct contributions of your time or services, like volunteer work. You also can’t claim any contribution that involves an exchange of goods from which you might personally benefit, like a purchase from a charity bake sale, or buying a raffle ticket.
Lastly, the charity must be a qualified organization in the eyes of the IRS. Before you claim a donation, use this IRS look-up tool to see if the charity is eligible to receive tax-deductible charitable contributions.
