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Charitable donations to non-profit organizations allow them to stay afloat, as well as feed the hungry and boost the economy. However, knowing how to calculate and deduct them during tax preparation isn’t always easy. The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act offers new and increased tax incentives to individuals and businesses making donations to qualified charities.

4 Tax Preparation Tips for Charitable Donations

1. New Above-the-Line Deduction Available for 2020

While the Tax Cuts and Jobs Act made it more difficult to claim charitable deductions for 2018 through 2025 (due to the near doubling of the standard deductions), the new CARES Act allows a deduction of up to $300 on your 2020 taxes for donations in addition to your standard deduction. The charities don’t have to directly relate to the COVID-19 pandemic to qualify for the new deduction.

2. Itemized Deduction Limit Increased

tax preparationOriginally, tax code limitations kept individuals from deducting charitable donations in excess of 60% of their adjusted gross income (AGI) when itemizing their deductions. Now, with the new CARES Act, itemizers can deduct donations up to 100% of their AGI. There are some exceptions, however, but any excess amounts will carry over for five years.

3. Corporate Deduction Limit

Corporations are not exempt from limitations when it comes to including charitable donations on their tax forms. Under previous tax law, corporate contributions were limited to 10% of their taxable income. The new CARES Act has increased the limitation to 25% of their taxable income for 2020. The five-year carryover and specific exceptions are still applicable.

4. Food Donations

Deductions are available to restaurants and other food service businesses who donate food to charities.  Prior to passage of the CARES Act, this business deduction was limited to 15% of taxable income.  For 2020, the new law increases this limitation to 25% of taxable income.  Detailed calculations of the cost/value need to be performed, so it is best to work with your accountant to determine the deduction amount allowed.

 

If you’re in need of tax preparation assistance, reach out to Donna J. Troutman, CPA, PC. They have more than 30 years of experience as certified public accountants and work with individuals and businesses throughout Lewisburg, PA. As a member of the PA Institute of Certified Public Accountants, PA Society of Tax and Accounting Professionals, and QuickBooks® Professional Advisors, they’re up-to-date on the latest developments. Call (570) 523-7337 to set up an appointment or visit their website for a full list of services.

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