I am not eligible to itemize deductions, can cash charitable contributions reduce my federal tax liability?
Prior to 2020, the answer to this question was no!
Some quick history for starters!
Prior to 2020, charitable donations could only be deducted by taxpayers' itemizing deductions' on their tax return.
The 2017 Tax Cuts and Jobs Act (which took effect in 2018) resulted in a substantial increase in the available 'standard deduction' (about doubling the prior #'s) and resulted in far fewer taxpayers itemizing. The Tax Policy Center estimates that 87 percent of tax filers in 2019 chose the standard deduction over itemizing deductions.
The Coronavirus Aid, Relief, and Economic Security (Cares) Act gave taxpayers who took the standard deduction for tax year 2020 the ability to take an 'above-the-line' $300 federal income tax deduction for qualified charitable contributions. This allowable deduction served to reduce both one's Adjusted Gross Income and taxable income, thereby reducing the amount of federal income tax liability. Note that this $300 deduction was the same for taxpayers of all filing statuses.
Note that the term 'above-the-line' refers to deductions taken prior to getting to the 'adjusted gross income' line on your tax return.
For the 2021 tax year, this charitable deduction gets better for those who file a joint tax return. For 2021, those who are married and filing jointly can take a total deduction of $600.
Note that only cash contributions to qualified charities are eligible. 'Cash contributions' include donations made in cash, via check, credit/debit card, or electronic fund transfers. You cannot take the deduction for contributions of clothing, household items, or other non-cash contributions.
Remember that this deduction comes on top of the standard deduction.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
LPL TN: 1-05253813