Congress last month sought to jump-start charitable giving by offering rank-and-file taxpayers access to a charitable deduction for up to $300 in donations. The goal was to help groups affected by the coronavirus and the economic crisis.
Nonprofits have long been asking Congress to extend deductions to people who don’t itemize their returns — a group that includes about 85 percent of Americans.
In the days since passage of the deduction measure, included in the Cares stimulus act, many donors and nonprofits have expressed confusion about how the deduction works.
Here’s what tax and nonprofit experts told us:
Who is eligible to take the deduction?
Only taxpayers who don’t separately itemize their deductions are allowed to claim the new deduction. Alexander Reid, a Washington tax lawyer who served as legislative counsel for Congress’s Joint Committee on Taxation, notes that when the tax overhaul was passed in 2017, the threshold for the standard deduction was doubled. For individuals it is now $12,200.
That means only about 12 percent of taxpayers benefit from separately itemizing their deductions, Reid says, noting that most people don’t have enough to deduct to make it worth itemizing.
Are couples who file jointly allowed to claim a $600 deduction?
The legislation is not clear on this point, experts say.
Reid says the deduction is allowed for each tax form that is filed, meaning that the $300 deduction limit applies whether taxes are filed by either an individual or a married couple.
Howard Gleckman, senior fellow at the Urban-Brookings Institute, says, “It’s not really clear” whether it works that way or if a couple filing jointly can claim a $600 deduction.
“This is probably going to require IRS guidance, and who knows when that’s going to show up,” said Gleckman.
The IRS press office did not respond to a request for comment for this article, but we’ll keep checking.
Is the $300 deduction permanent?
The deduction appears to be only good for tax year 2020 — though Gleckman noted that Congress did not specifically say that it expires in December.
One thing is clear: It’s important for fundraisers to tell donors that those who haven’t filed 2019 taxes can’t claim it this year.
But it will be harder to tell donors whether to expect repeat opportunities to use the deduction.
The confusion came because several proposals are pending in Congress to extend it to future years or to raise the $300 cap, charity experts say.
Michael Nilsen, vice president for marketing, communications, and public policy at the Association of Fundraising Professionals, notes that it’s possible the provision could be renewed at year’s end as Congress often does with other one-year provisions. “It’s conceivable it could be extended, but at this point, the law is pretty clear: It’s just about 2020.”
Can a taxpayer claim a deduction for giving a car or other material goods to charity?
Only cash gifts are eligible for the $300 deduction. Gifts of stocks, clothes, vehicles, and land are all off the table.
Congress followed the “keep it simple, stupid” rule when limiting the deduction to cash gifts, says Ken Kies, managing director of the Federal Policy Group and former chief of staff of the Joint Committee on Taxation.
If other types of gifts were included, tax accountants and Internal Revenue Service staff would get bogged down in calculating the correct value of the gift for tax purposes, Kies says. He adds that in future debates, Congress may address whether to include noncash gifts to make the deduction more attractive.
Can gifts to any nonprofit be used to claim the deduction?
No. Gifts to establish or add to a donor-advised-fund account do not qualify. Nor do gifts to supporting organizations — charities that are set up to aid one specific nonprofit.
Is there additional paperwork required to claim the deduction?
No additional paperwork is required, but charities should acknowledge these gifts just like they acknowledge any other donation. Taxpayers should be prepared to substantiate their gifts in case they are audited. “Let’s be honest: The IRS isn’t going to expend a lot of audit resources to figure out if someone made a $300 contribution,” Kies says. “Still, taxpayers shouldn’t be reckless.”
•••
As the coronavirus crisis deepens, the Chronicle is providing free access to our breaking-news updates on its impact on the nonprofit world. It’s your support that makes our work possible. Please consider subscribing today.
