Congress last month sought to jump-start charitable giving by offering rank-and-file taxpayers access to a charitable deduction for up to $300 in donations. The goal was to help groups affected by the coronavirus and the economic crisis.
Nonprofits have long been asking Congress to extend deductions to people who don’t itemize their returns — a group that includes about 85 percent of Americans.
In the days since passage of the deduction measure, included in the CARES stimulus act, many donors and nonprofits have expressed confusion about how the deduction works. Here are some questions and answers from experts in the nonprofit field. As always, if you have questions about your donation to the Triangle Education Foundation, contact Amy Buchheit, CFRE, Senior Director of Development at 317-203-7759 or email her at email@example.com
Who is eligible to take the deduction?
Only taxpayers who don’t separately itemize their deductions are allowed to claim the new deduction. Alexander Reid, a Washington tax lawyer who served as legislative counsel for Congress’s Joint Committee on Taxation, notes that when the tax overhaul was passed in 2017, the threshold for the standard deduction was doubled. For individuals it is now $12,200.
Are couples who file jointly allowed to claim a $600 deduction?
The legislation is not clear on this point, experts say.
Reid says the deduction is allowed for each tax form that is filed, meaning that the $300 deduction limit applies whether taxes are filed by either an individual or a married couple.
Howard Gleckman, senior fellow at the Urban-Brookings Institute, says, "It’s not really clear" whether it works that way or if a couple filing jointly can claim a $600 deduction. This is probably going to require IRS guidance." said Gleckman.
Is the $300 deduction permanent?
The deduction appears to be only good for tax year 2020 — though Gleckman noted that Congress did not specifically say that it expires in December.
One thing is clear: If you haven’t filed 2019 taxes, you can’t claim it this year.
Can a taxpayer claim a deduction for giving a car or other material goods to charity?
Only cash gifts are eligible for the $300 deduction. Gifts of stocks, clothes, vehicles, and land are all off the table.
Congress followed the "keep it simple, stupid" rule when limiting the deduction to cash gifts, says Ken Kies, managing director of the Federal Policy Group and former chief of staff of the Joint Committee on Taxation.
If other types of gifts were included, tax accountants and Internal Revenue Service staff would get bogged down in calculating the correct value of the gift for tax purposes, Kies says. He adds that in future debates, Congress may address whether to include non-cash gifts to make the deduction more attractive.
Can gifts to any nonprofit be used to claim the deduction?
No. Gifts to establish or add to a donor-advised-fund account do not qualify. Nor do gifts to supporting organizations — charities that are set up to aid one specific nonprofit.
Is there additional paperwork required to claim the deduction?
No additional paperwork is required, but charities should acknowledge these gifts just like they acknowledge any other donation. Taxpayers should be prepared to substantiate their gifts in case they are audited. "Let’s be honest: The IRS isn’t going to expend a lot of audit resources to figure out if someone made a $300 contribution," Kies says. "Still, taxpayers shouldn’t be reckless."