“You have to do the best with what God gave you.” – Mrs. Gump
Who doesn’t remember the classic movie about the life of Forrest Gump and his famous ‘mama’. Forest Gump is a feel good movie about a guy who gave his everything to those he loved. Not surprisingly, Americans are pretty charitable when it comes to giving things to those in need.
When Congress passed the Tax Cuts and Jobs Act (TCJA) in late 2017, nonprofits were freaked out by the essentially doubled standard deduction amounts. They feared that even more taxpayers would claim the new, larger standard deductions instead of itemizing. That meant less of a tax incentive for people who gave charitable donations.
One analysis did indeed find that overall, the TCJA reduced the marginal tax benefit of giving to charity by more than 30 percent in 2018, raising the after-tax cost of donating by about 7 percent.
Charities felt that real dollar shift in 2018, when contributions dropped by 2 percent to $296 billion. But then came 2019, when philanthropic gifts jumped to nearly $450 billion. That was a record level of giving in nominal terms. When adjusted for inflation, it marked the second-highest donation amount ever after 2017.
Taxes do matter somewhat but not totally when looking at charitable giving. But Congress has given taxpayers another incentive for giving in 2020. Under the Coronavirus Aid, Relief and Economic Security (CARES) Act enacted in late March, filers who choose to use the standard deduction could claim up to $300 in cash donations (which, under Internal Revenue Service rules, include gifts via credit card) to qualified charities.
This would reduce the taxpayers' gross income, thereby reducing the amount of taxable income and, if things go as planned, their eventual tax bills.
It is not clear if this deduction would be doubled for those filing as Married, filing jointly.
Hopefully either Congress or the Internal Revenue Service will clarify this.
Currently Congress is attempting to put together another Corona Virus relief package. This package increases the contribution amount for single filers to $600 and allows a $1,200 deduction for those finally married.
This deduction is considered an ‘above the line’ deduction and is not reported on Schedule A for itemized deductions. This allows a charitable deduction for the vast number of taxpayers, who do not benefit from filing a Schedule A.
If you are one of those taxpayers who do not benefit from the charitable giving section of Schedule A, you might want to remember to include any donations (cash) on your 2020 tax return. If you use a tax preparer, make sure she knows about these donations as well.
Keep your eye on any last-minute legislative changes. We will also let you know if and when Congress passes any laws at the last minute.
CATCH BULLCAST THE PODCAST! Our colleagues at Pickler Wealth Advisors are publishing a weekly podcast on financial information, including taxes. This week's episode is on Charitable giving. Catch co-hosts Katie Pickler and Cort Winsett offering a humorous, entertaining, and informative podcast. You can subscribe or catch individual episodes at www.bullcastpodcast.com. Also, look for upcoming PAA Tax blogs and BullCast episodes on important tax and financial information.