As we head into the holiday and giving season, here’s 3 strategies to help you save on taxes via giving thanks to the CARES Act that was passed last spring in response to the coronavirus. These changes are for this year only, so I want you to know about them.
1) $300 above-the-line deduction for gifts made to charity. This is only for those who do not itemize their deductions on their Federal return (aka this is only for those who take the standard deduction). Due to the doubling of the standard deduction, this applies to now 90% of taxpayers.
Usually, if you give to charity and take the standard deduction, you get the full benefit of feeling good about your donation, but it has no bearing on your taxes. For 2020 only, you can deduct up to $300 from your taxes! Just based on the tax benefit alone, this could increase your net giving by up to 60% thanks to the taxes you’ll save.
2) The AGI (Adjusted Gross Income) limit for cash charitable contributions temporarily repealed. You used to only write-off up to 60% of your AGI for any cash contributions you gave to non-profits. In 2020, you can write-off 100% of your income. And completely wipe out any 2020 tax liability. If you’ve always wanted to never pay taxes, now is your chance.
Even if your contributions exceed 100% of your AGI, the excess can be carried forward for up to 5 years. So in other words, you don’t lose out by giving more than 100%.
In what situations could you use this strategy? A prime situation is one where you have extra money – either from a gift, surprise, or due to good savings habits. Some examples:
– Received a life insurance policy payout this year (typically, this would be non-taxable)
– Received an inheritance
– Have a high income year and would like to accelerate donations from future years into 2020
– You earn an income, but don’t need it to live off of due to other savings
3) The AGI limit was increased for corporate donors. If you run a business (or know someone who does), then up to 25% of their taxable income can be written off by cash contributions to charities. This is typically 10%.
Remember these changes are for 2020 only!
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