Giving to Charity Using the CARES Act Charitable Deductions
- The CARES Act allows all tax filers to claim a tax deduction for charitable contributions.
- That maximum deduction was $300 for married couples in 2020.
- The amount increased to $600 for the 2021 tax year.
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With the pandemic wreaking havoc on jobs, the economy, and personal finances this year, more people than ever are in need of the assistance provided by charities and nonprofit organizations. If you’re fortunate enough to be in a solid financial position right now and can give to those in need, there’s more good news: The CARES Act includes an extra tax benefit for giving to charity. But you may need to act soon, because it only applies to charitable contributions made by December 31.
How the CARES Act charitable deduction works
The CARES Act, passed in the spring, allows for a special $300 above-the-line tax deduction for cash donations made directly to a nonprofit organization in 2020. Here is a bit more explanation of what that actually means.
In this case, “cash donations” means not only physical cash, but also credit and debit card transactions and checks. Donations of other assets, such as stock or household goods (think Goodwill) don’t qualify for the CARES Act deduction, though they can still be claimed as usual under itemized deductions.
“Above the line” means that the deduction will directly reduce your taxable income, which is a better benefit than you’d get from itemizing charitable contributions.
It also means that you don’t need to itemize deductions in order to take advantage of the CARES Act charitable deduction. Anyone taking the standard deduction can take advantage of this tax benefit. However, you’ll still want to save the receipt or thank-you email from your donation for your tax records.
Savings will vary by tax bracket
How much the CARES Act charitable deduction will save you depends on your tax bracket. This is a tax deduction, not a tax credit, so you won’t get your full $300 back. Those in the 10% tax bracket could get $30 back, and those in the 37% bracket could get $111 back. For this reason, it’s best to give to charity based more on your desire to give and what you can afford, and consider this tax deduction a bonus for doing something you want to do anyway.
How to maximize your charitable giving
Sometimes it can be difficult to give as much as you’d like to if you wait until the end of the year. That’s why it’s a good idea to get into the habit of giving throughout the year. For example, instead of doing a lump-sum donation of $600 in December, you could give $50 a month. Most charities’ websites are already set up to take recurring donations. Repeating, smaller donations may benefit both you and the charity because:
It may be easier to budget for regular smaller donations instead of one large donation
You aren’t tempted to spend that money on holiday gifts instead
It’s better for the charities to have consistent income throughout the year rather than having to count on a surge of donations at the end of the year
Another way you can help your donations go farther is by looking for matching opportunities. Check with your employer to find out if they match employee donations, and keep an eye out for communications from your favorite charities announcing matching campaigns.
Finally, some states, like Arizona, offer tax credit opportunities. Unlike a tax deduction (like the one in the CARES Act), a tax credit reduces the amount of state income tax you owe. For example, if you owe $500 in state income taxes but gave $200 to a local school, you only have to pay $300 in taxes. Check with your state’s tax collection agency to find out what tax credits, if any, are available in your state.
Donating on a tight budget (or no budget)
If you don’t have much money to give at the moment, you can still help out a worthy cause in other ways. Although they’re not eligible for the CARES Act charitable deduction, they’ll still benefit nonprofits in need during these challenging times.
Here are some ideas to get you started:
Raise funds online on behalf of your favorite charity. Facebook has a feature to do this, you can use a website like GoFundMe, or the charity may have a program for volunteers to raise money on their site.
Organize a food drive. Did you buy more canned goods back in the spring than you need? There are plenty of families who could use it now. Organize your co-workers, friends, and family to gather what food they can spare for local food banks.
Shop wisely. During these times, it’s important to support local family-owned businesses that are at greatest risk of going out of business. When shopping with larger companies, take advantage of their charity programs, like AmazonSmile.
Donate your birthday. Instead of gifts, ask friends and family to donate to your favorite charity in your name.
Volunteer your time and skills. If you’re out of work or your hours have been cut back, consider volunteering your services pro bono to a nonprofit.
Donate your credit card rewards. Check with your credit card company to see how to donate your cash back, airline miles, or points to charity.
Give blood. It’s needed now more than ever.
If in doubt, simply ask local organizations what kind of help they need. There’s a way for everyone to contribute in some way or another.
Five additional benefits of giving to charity
In addition to helping out a good cause and getting a bit of a tax break, there are other ways that charitable giving can benefit you and your community.
Improves your health. This isn’t just about improving your mood by making you feel good (which helping others certainly does). Studies show that people who give tend to live longer, are happier, and have healthier hearts.
Strengthens your local community. By giving to organizations that serve local populations, like food banks and schools, there are more resources in your area to benefit the entire community.
Gives you purpose. When life gets you down, helping others gives you a reason to get involved in your community and feel needed.
Reminds you of the good things. When you’re under stress, your worries can seem overwhelming. Giving helps take your mind off your own troubles and reminds you of the good that exists in life.
Makes you part of the solution. Never underestimate the impact you can make. Whether you’re giving financially or volunteering your time, whether you’re giving a little or a lot, you’re making the world a better, kinder place one good deed at a time.
When more of your money is going to debt than to charity
If you find giving to charity difficult because so much of your money is going to pay down debt, then it’s time to get that debt under control. Learn about the six ways you can better manage your debt by downloading our free How to Manage Debt guide now.
By resolving your problems with debt, you not only improve your own financial wellbeing, you are also in a better position to help others in need. Whether it’s getting debt under control or making ends meet during the pandemic, we all need a little help now and then, so don’t hesitate to reach out when you need some assistance.
We’re all in this together.
Learn More:
How to Set up a Christmas Budget (Freedom Debt Relief)
Year-Round Tax Planning Strategies (Freedom Debt Relief)
Seven Easy Ways to Start Saving for Christmas (Freedom Debt Relief)
13 ways to give to charity without breaking your budget (USA Today)
Should You Change Your Financial Planning? (Freedom Debt Relief)