So, it’s almost November.   Which means we should be considering our 2020 tax positions.

Most of you know that it’s become nearly impossible to itemize deductions nowadays.  Overall, the Tax Cut and Jobs Act (effective for 2018 forward) decimated the number of folks who itemize- from 31% of all returns down to 13.7%.  But, you can see from the chart that it really has hurt those that are not the richest folks in America the most.

Which is why we’ve been advising our married clients that are on the cusp- those limited to $ 10K of state/local/prop taxes (the cap for such taxes imposed by the TCJA), and mortgage interest of $10K to campaign their charitable deductions.  So that every other year, they can pass the threshold and itemize- and still help their fellow citizens.

But, given that this year of the pandemic- where our governments have really failed to help those citizens at the bottom rungs of the economic ladder- the CARES act has given some of us a little break.

If we are unable to itemize deductions, we have the ability this year to reduce our taxable income by $ 300 ($600 for married couples filing jointly) with an above-the-line deduction for charity.  Not much help- but help nonetheless.  (For example, my charitable donations are decades higher than this. )

And, if we are itemizing deductions, the CARES Act has some presents for us, too.   Prior to the changes, we couldn’t deduct charitable donations that exceeded 60% of our adjusted gross income (AGI).  AGI the income level from which we subtract either the standard deduction or our itemized deductions (plus any QBI- qualified business income- for those of us with pass-through businesses) to derive our ‘taxable income’.

So, if our AGI was $ 60,000 (married, filing jointly), with the $10K capped state/local/prop taxes and $ 10K in mortgage interest, we could have donated up to $ 36,000 (60% of $ 60K)  in charitable cash donations.  [Yeah, I don’t know who could pass along $ 36K to needy causes on a $ 60K income, either.]  That would mean our taxable income would be $ 4000- and we’d owe no taxes.

If our AGI was $ 120K (married filing jointly), our charitable cash donation was capped at $ 72K.  When added to the same 10K capped state/local/prop taxes and $ 10K in mortgage interest, our taxable income would be $ 48K- meaning we’d owe about $ 5300 in taxes.

Remember the CARES act removed the 60% cap on charity for this year (2020) only.  So for this year only, we can give away 100% of our AGI for cash donations.  [Again, this really only applies to the 1%, who have plenty of assets and don’t rely on W2 income to live.]

And, don’t forget there still is a 30% cap on NON-cash donations.  That’s stuff like clothing, books, electronics, etc. that we donate to Purple Heart, Salvation Army, Kars4Kids, etc.

No matter what, though- help those in need.

Share this: