The CARES Act added a brand new $ 300 donation deduction for 2020. Right here's what it is best to know
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Are you giving your favorite charity a few dollars in time for the holidays? You can finally collect a tax break for it.
The CARES bill, which was incorporated into law this spring, included a "partial over-the-line deduction" for charitable contributions.
This allows individuals who claim the Standard Withholding – which is $ 12,400 for single registrants and $ 24,800 for joint filing for marriages in 2020 – to claim a donation deduction of up to $ 300.
You would apply for this tax break when you file your 2020 return next spring.
"The only caveat is that the donation must be made directly to charity and must be in cash," said Mark Alaimo, CPA and a member of the American Institute of CPAs' Personal Financial Specialist Committee.
You can also use a credit card or check to make your donation.
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Since the Tax Reduction and Employment Act came into force in 2018, fewer people have applied for tax breaks for charity.
This is due to the fact that the tax overhaul also roughly doubled the standard deduction, which resulted in fewer taxpayers making individual deductions.
In the 2018 tax year, around 17.5 million returns called for individual deductions – write-offs that include charitable donations, mortgage interest, and other breaks, the IRS found.
This is less than 46.9 million returns on which the deductions were recognized in the 2017 tax year.
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Accordingly, fewer people also applied for tax breaks for donations: 14.8 million returns required a charitable allowance in 2018, compared with 37.9 million in 2017.
Deductions reduce taxable income based on your federal income tax bracket. This means the higher your brace, the more you save.
In essence, this means that a $ 300 deduction is worth only $ 30 for someone in the 10% tax bracket, according to Marc Goldwein, senior policy director on the Federal Responsible Budget Committee.
Meanwhile, a $ 300 deduction for someone in the 37% class is worth $ 111.
Below is a breakdown of the marginal tax brackets for 2020.
2020 income tax brackets
Keep your documents
If you are expecting a write-off for the money you give to your favorite charity, be sure to keep any confirmation letters or receipts that you receive in return.
In general, you can write off a donation of $ 250 or more if you have received written confirmation from the charity.
At a time when people are using their credit cards to donate to their favorite charities, the "thank you" email you receive from the organization is evidence of your donation, Alaimo said.
Print out the document or save the email. You'll need it when you file your taxes next spring.