As part of the U.S. Treasury’s COVID-19 (coronavirus) relief programs for taxpayers, the IRS has made temporary changes to the rules for deducting charitable contributions on federal tax returns. These changes may allow you to claim a larger deduction on your 2020 tax return, and may even carry over a deduction to tax year 2021.
2020 Higher deduction limit for individuals and corporations and carryover rules:
Normally, individual and joint tax filers who itemize deductions on Schedule A can deduct cash charitable contributions up to a specified limit, usually 60% of their adjusted gross income (AGI). For 2020, however, qualified contributions may be deducted up to 100% of the taxpayer’s AGI. The deduction limit for charitable cash contributions made by corporations has also increased for this year, up to 25% of the corporation’s taxable income.
Furthermore, some qualified contributions in excess of these temporarily increased limits may be carried over as a deduction for the next tax year.
What is a “qualified contribution”?
To qualify for this limit exception, a contribution must satisfy ALL of the following requirements:
- It is a cash contribution (that is, a direct contribution of money, not other property)
- It is made to a qualifying charitable organization
- It is made during calendar year 2020.
Note that non-cash property contributions made in 2020 do not qualify for this higher deduction limit. However, depending on the amount of your cash donations this year, you may still be able to deduct non-cash contributions up to the normal limit (typically 50% of AGI, minus the amount of any deducted cash contributions).
How to find qualifying charitable organizations:
Before making any donation that you plan to deduct on your tax return, make sure that the charity is eligible to receive tax-deductible contributions under IRS rules. Qualifying organizations generally have tax-exempt status under Section 170(c) of the U.S. Internal Revenue Code, and typically include:
- A U.S. state, the District of Columbia (D.C.) or a U.S. territory or possession, provided that donated money is used exclusively for public purposes
- Community chests, trust funds and foundations that were established exclusively for charitable, religious, educational, literary or scientific purposes, or to prevent cruelty to children or animals
- Churches, synagogues, mosques and other religious organizations
- Many war veterans’ organizations and posts
- Nonprofit volunteer fire companies
- Cemetery care organizations, provided that donated funds are used for the ongoing care of the entire cemetery, not just a specific mausoleum or burial plot
You can also check on the tax-exempt status of an organization, or find charitable organizations engaged in work you wish to support, by using the IRS online Tax Exempt Organization Search tool.
Proper record keeping is critical:
In order to deduct charitable donations on your tax return, you must maintain detailed records of the contribution, including a receipt from the nonprofit organization showing the donation amount. (For non-cash donations, this amount is typically the fair-market value of the property.)
A tax professional can help you determine the eligibility of your chosen charitable organization, whether your 2020 cash contributions qualify for the deduction limit suspension, and how to properly document and claim your full deduction if so.