Part of comprehensive estate planning includes finding last minute tax saving strategies in the final quarter of 2020. One such strategy involves the changes that were made to the charitable giving rules under the 2020 Cares Act.
This act, established in 2020, provides a universal provision that allows taxpayers to deduct non-itemized, above-the-line charitable contributions. It has been deemed universal for the reason that all tax filers may use this deduction regardless of whether they itemize or take a standard deduction.
The provision allows taxpayers to deduct $300.00 for charitable contributions. Charities have lobbied for such a universal deduction for many years. Although the charities were seeking a universal deduction in the thousands of dollars, at least the $300 deduction is something and may pave the way for increases in the future.
The $300 limit applies for each return so for those filing jointly they can only take the deduction one time up to the $300 limit. As a universal above-the-line deduction, you can list your contribution as an adjustment to income on your taxes. If you donate up to $300 in cash to a qualified organization, your adjusted gross income will be reduced up to $300.
The contributions that qualify must be made in cash, which includes checks and credit card payments, but not in-kind donations. The contributions must be made to a 501(C)(3) public charity. Any contributions to private foundations or donor-advised funds are excluded under this new deduction.
A few other end-of-year tax savings strategies as we wrap up 2020:
- Organize all your receipts and other important documents now. We often advise our clients that tax preparation is a full-time, year-round endeavor in collecting and organizing records, receipts and other important documentation.
- Make the maximum allowable contribution to your retirement fund so that you can deduct that from your taxes. The annual contribution limit for 2019, 2020, and 2021 is $6,000, or $7,000 if you are age 50 or older. Read more FAQs on IRA contributions on the IRS website.
- Familiar yourself with all deductions and credits that may apply to your situation.
Make sure your estate planning documents are reviewed and up-to-date. We offer year-end consultations at Stouffer Legal for estate planning document review and revisions. Contact us to learn more.
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