A gift of $300 to those in need earns a deduction due to the CARES Act


Can $300 change the world? It's a relatively modest amount, but U.S. taxpayers who donate $300 in cash to causes such as food banks or other worthwhile nonprofits can assist people who are struggling while enjoying a tax benefit. The deduction is part of the Coronavirus Aid Relief and Economic Security Act, also known as the CARES Act, a $2.2 trillion economic stimulus bill Congress passed this past March.

The year 2020 will probably be studied by historians for many years due to the pandemic, the resulting economic crisis, and nationwide civil unrest. Early in the year, the U.S. government acted quickly to pass measures to aid businesses and individuals and stimulate the economy. Federal and local governments' actions to prevent the spread of the virus had the unintended consequence of causing thousands of employers to shut down or declare bankruptcy, triggering the loss of millions of jobs.  

As a result, Congress passed the CARES ACT that featured six main types of relief: 

  • Direct assistance for U.S. workers and families 
  • Help for small businesses (the Paycheck Protection Program) 
  • Efforts to preserve jobs 
  • Assistance for state, local and tribal governments 
  • Emergency rental assistance 
  • Emergency capital investment program to provide capital directly to banks to support small businesses and consumers in low- and moderate-income communities

Maximum Amount of Direct Assistance Per Individual

The maximum amount of assistance that each individual received was $1,200, with an additional $500 per dependent.

The good news is that the relief check is not considered taxable income, but it will have to be accounted for on your 2020 tax return to confirm that you received the correct amount.

The CARES Act's charitable deduction, even for people who do not itemize

U.S. residents rank among the most generous people globally and annually donate to organizations such as churches, youth sports charities, and nonprofits such as the ASPCA. Unfortunately, many of these nonprofits and religious organizations experienced a sharp decline in donations last year due to the pandemic. 

To address the crisis, Congress added a provision to the CARES ACT to encourage people to be generous to charitable causes. The new condition allows individuals to deduct up to $300 in cash donations from their income. 

To explain the tax deduction in greater detail, section 2104 of the CARES Act allows eligible individuals who do not itemize deductions to deduct $300 of qualified charitable contributions as non-itemized, above-the-line charitable contributions. This means that the donation helps you make an adjustment when computing your adjusted gross income (AGI) for tax years beginning in 2020.

This provision is significant because previously, you could only deduct charitable contributions if you itemized your deductions rather than taking the standard deduction. The CARES Act now allows people who do not itemize to deduct charitable donations since the CARES Act deduction is a universal above-the-line deduction.

Bottom line, the CARES Act lets you donate up to $300 in cash to a qualified organization, and you will earn a $300 reduction to your adjusted gross income.

What are the qualified charities?

To qualify for this deduction, you must make contributions in cash (including checks and credit card payments) to a 501(c)(3) public charity—donations in consideration for goods or services are not eligible. Unfortunately, contributions to non-operating private foundations, support organizations, and donor-advised funds do not qualify.

Before donating, the IRS recommends that taxpayers check the Tax-Exempt Organizations Search (TEOS) tool on the IRS website to ensure that your charitable organization of choice is eligible for tax-deductible donations.

Another plus is that you don't have to provide documentation when you file gifts of $250 and under, but it is prudent to keep proof of cash receipts. Gifts larger than $250 must include the receipt or proper documentation when filing your returns.

The $300 amount may be a bit modest for larger nonprofit organizations. Still, it could boost small to midsize nonprofits because the pandemic has increased the demand for services. Considering the great need among those who have been laid off or are having trouble feeding their families, any effort to inspire more people to give is undoubtedly valuable.

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