As 2020 continues its arduous march to an end, Inland Northwest financial advisers, tax preparers, and heads of nonprofits are reminding clients and benefactors about a charitable giving tax benefit included in the federal Coronavirus Aid, Relief, and Economic Security Act.

Spurred by projections of job losses and other economic challenges faced by millions of Americans due to COVID-19, Congress earlier this year included a provision in the CARES Act designed to stimulate an increase in donations to charitable organizations.

Section 2104 of the CARES Act enables tax filers who don’t itemize to take a one-time, $300 universal, above-the-line deduction for charitable contributions. 

Typically, taxpayers can deduct charitable contributions only by itemizing, which requires a more complex filing than the one with a standard deduction.

The standard deduction for 2020 income, which can be subtracted from gross income to determine taxable income, is $12,400 for single filers and $24,800 for married couples filing jointly.

The universal charitable deduction can be added to the standard deduction. Both individual and joint filers are subject to the $300 limit for the universal charitable deduction.

For those who choose to itemize, the CARES Act provision allows them to deduct charitable contributions of up to 100% of their adjusted gross income, an increase from a 60% maximum in past years. Also, the adjusted gross income for cash contributions for corporate donors allows for a deduction up to 25% of income, an increase from 10%, according to the act.

Recipients of charitable contributions can include churches, youth sports charities, and other federally qualified nonprofit organizations, says Tim Henkel, CEO and president of Spokane County United Way.

Henkel says the organization has promoted the $300 deduction to all taxpayers this year regardless of their typical tax-filing status.

Spokane County United Way’s annual campaign is still ongoing. Henkel says it’s too early to tell if the CARES provision has increased donation activity.

“Based upon early results we’re showing some increases, but we can’t tie this to the universal deduction,” he says.

It’s been Henkel’s impression that Spokane County residents have stepped up financially through the year to help those who’ve been affected by the pandemic and not solely because of the $300 deduction Congress made available.

“I think that there has been an increased awareness of the need,” he says. “Given all that has gone on this year people are showing their desire and willingness to lend a hand.”

Rial Moulton, a certified public accountant with Retirement & Tax Planning Specialists Inc., in Spokane Valley, says the company has encouraged tax filers to take advantage of the $300 universal deduction.

But while Congress may have been well intentioned in its efforts to increasing donations, the approved $300 universal deduction isn’t a substantial amount for tax filers as they attempt to reduce their tax liabilities, he says.

“It’s at least something,” says Moulton, who also is a lawyer and certified financial planner with Retirement & Tax Planning Specialists, at 1220 N. Mullan. He cofounded the company with his brother, Don Moulton, in 2004.

Similar to Retirement & Tax Planning Specialists approach, Adam Sweet, an accountant with the Spokane office of Eide Bailly LLP, says the financial investment firm has been reminding clients all year of the tax break offered to them this year.

“It’s not a huge break, but we’ve certainly let clients know it’s available to them,” Sweet says. “Hopefully, it will encourage an increase in donations and help those in need.”

A tax filer in the 10% tax bracket would only get a savings of $30 in taxes with the $300 deduction, Sweet says.

Sweet says he expects a very small number of tax filers to itemize their contributions.

“That’s not going to be a common planning tool for our clients,” he says.

While raising the one-time standardized deduction could have provided more of a boost for nonprofit organizations, Sweet says it could’ve been more problematic for the IRS in the auditing process down the road.

Any amount that exceeds the $300 limit may not be carried forward to future tax years or claimed as an itemized deduction, he says.

In addition, the $300 universal charitable deduction will come at some cost to the U.S. federal government.

The U.S. Congress Joint Committee on Taxation in Washington, D.C. estimates the government’s revenue loss for the new deduction to be just above $1.2 billion for 2020, according to an article in the Journal of Accountancy.

Allowing nonitemizers to deduct charitable contributions in an effort to stimulate giving has been done before in the U.S., says Spokane County United Way’s Henkel.

With the country mired in a deep recession, and newly elected President Ronald Reagan fresh off a landslide win against Jimmy Carter, Congress passed the Economic Recovery Act of 1981. It too allowed nonitemizing tax filers to make charitable contributions and deduct them from their adjusted gross incomes.

“When this was made available, there appeared to be an increase in the number of people giving,” Henkel says.

However, when the universal deduction went away after two years, nonprofits suffered a drop in donations, he says.

Henkel says the United Way, YMCA, and several other larger nonprofits, are continuing to lobby legislators into extending the 2020 universal charitable deduction for years to come.

“My gut tells me that (Congress) may extend this over into 2021,” Henkel says.