It is that time of a year again: holidays and shopping. I bet tax is probably the last thing on your mind right now. Or, you may think that it is a bit late to make any tax move by now. Well, that is not the case this year.
We know that many tax payers have stopped itemizing their charitable donation deductions due to substantially higher amount of standard deduction since the enactment of The Tax Cuts and Jobs Act (TCJA). But, there is a bonus to tax payers this year due to coronavirus relief bill passed by Congress. That is, your can deduct your eligible charitable contributions in the amount of $300 for individuals and $600 for a couple “above the line”. Above-the-line deductions benefit you whether or not you itemize your deductions. Above-the-line deductions refer to those deductions such as retirement plan contributions that reduce your adjusted gross income (AGI).
So, what is so special about adjusted gross income? Quite a lot according to a blog post by TaxAct. Every dollar that reduces your AGI reduces your taxable income. And it may help you qualify for other deductions, too. Various credits are based on your adjusted gross income. In some cases, even a small adjustment may help you qualify for a credit or other tax perk that you would not receive otherwise.
To be eligible for this deduction, your charitable contributions must be in the form of cash, check, or credit card payments and you must have the proper documentation, i.e. receipts of your donations. Unfortunately, you may not deduct the clothes you donated to your local goodwill store after you cleaned your kid’s closet.
I know that you are making that holiday to do list, checking it twice, or several times. Be sure to put this simple tax move on that list. Not only will you help your fellow citizens, your generosity may also lower your tax bills in the coming year.