$300 Tax Deduction

I have been majorly slacking off on my blog, but I just had to inform you all about a tax deduction that everyone needs to do for 2020 taxes. If there is one thing you do before the end of the year, you should read this and take action.

For a pre-covid tax year, the only way that you could claim any charitable donations you have made is if you itemized your taxes. In December of 2017, Trump signed The Tax Cuts and Jobs Act that significantly raised standard deductions. When I say significant, he nearly doubled it; It is the highest deduction in American history. Before this, 46 million people would itemize their taxes and charitable donations were included in this and deducted, it is down to nearly 16 million since this new Act. I do not mean to say that this Act is bad, it is actually great and very beneficial to many. But for those that can no longer itemize, it meant that they could no longer take charitable tax deductions... until this year. For this year only, thanks to the CARES act, there is a special tax deduction of $300. So if you have been holding off on giving this year, give at least $300 to your favorite charity. If you use the standard deduction, you can take the $300 tax deduction that you would normally not be able to take. 

I am sure a lot of you still have no idea what I am talking about. So let's break this down some more. When you file your taxes in 2021 for the 2020 tax year, the standard deduction for married filing jointly (MFJ) under 65 years of age is $24,800 (single $12,400), if you itemize all of your qualified items and it does not exceed this amount, then you will use the standard deduction. The $24,800 is the amount you can deduct from your taxes and if you were to donate $300 to a qualified charity, then your deduction amount is now $25,100 ($12,700 for singles). This donation is what they call an "above the line" deduction which will reduce both your adjusted gross income (AGI) and your taxable income, which then reduces the amount of income taxes you owe. (Example, say your total taxable income (MFJ) for 2020 is $100,000 and you made at least $300 in charitable donations, then you can deduct the standard deduction of $24,800 plus the $300, so you would taxed on $74,900).

Bottom line, any time you can legally not pay money to the IRS then you should do that. This deduction is essentially giving money to the charity of your choice rather than the IRS and then being "refunded" your $300 off your AGI when you file your taxes. This is not a credit of $300, so you will not be getting back the full $300, you will be lowering your taxable income by $300. If you tithe your money to the church, you can use $300 of that towards this. If you have been holding off because of covid and hard financial times, see if this is something you can squeeze in. Charities need our help more than ever this year. Give what you can, even if it is more or less than the $300 deduction. You must make your donation before Jan 1, 2021 to qualify. 

What charity do you plan to donate to? Be sure to subscribe, share, comment and like this post. Have questions? Please reach out!

If you are interested in a free budget consultation or need a financial coach, please reach out. I am offering free consultations for the rest of 2020 and am taking on a few new clients who need a coach for 2021.