What Questions Remain About Itemization and Charitable Tax Deductions

In his final column concerning coronavirus and income taxes, Julian Block addresses questions about itemization and charitable deductions.

May 21st 2020
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I devoted two previous columns to corona-inspired queries about income taxes. I’m going to use this column to answer another query that I’ve lightly edited and condensed for clarity.

Question: Hello from Nadine, a Virginian who regularly contributes to established charitable organizations that focus on problems like preserving our forests, hunger, homelessness and improving educational opportunities for disadvantaged individuals.

Many of these organizations have shifted somewhat from their usual activities so as to deal with the corona crisis. They now also undertake deliveries of food and other necessities to, for example, those who live in multifamily buildings (about 25 percent of Americans, as noted on April 21, 2020, by the Washington Post), where isolation is often impossible and tensions build.

I’ll continue to donate to these charities and write even bigger checks. But I’m somewhat chagrined that my donations will, in the tax sense, be wasted.

What gums things up is that it no longer pays for me to itemize on Schedule A. The snags: I rent and pay no real estate taxes or interest charges on a home mortgage; $10,000 caps my deduction for state income taxes; and as for write-offs for medical expenses authorized by Internal Revenue Code Section 213, payments for uninsured expenses are unlikely to surpass the nondeductible threshold of 7.5 percent of my adjusted gross income.

Result: It’s more advantageous for me to claim the standard deduction that’s available to filers who don’t itemize. That strikes me as awfully unfair.

The least that Congress and President Trump could do is to cut a deal that cancels the current rules and replaces them with new ones that provide some sort of meaningful incentive for donations by the majority of filers who, like me, aren’t itemizers.

Answer: Based on your comments, Nadine, you appear to be unaware that our elected officials already stepped up to the plate. As AccountingWeb has mentioned several times, Congress and Mr. Trump recently created an incentive, albeit one that’s modest.

This past March 27, the president signed the $2.2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act. Buried in the wide-ranging legislation is a provision that permits you and other filers who don’t complete Schedule A to take a 2020 deduction of as much as $300 for donations to charities that qualify under Internal Revenue Code Section 501 © (3), a wide-ranging category that includes philanthropic groups like schools, hospitals, and religious institutions.

The CARES Act also allows filers to claim those donations without having to itemize. Where should filers look for the brand-new write-off of up to $300 on the 2020 version of the 1040 form? On the list of adjustments to income on Schedule 1.

As of now, it’s unclear whether our lawmakers intended that the $300 doubles to $600 on joint returns. Presumably, the IRS will clarify their intent. Stay tuned for an AccountingWeb announcement.

Nadine, maybe you could use some concise explanations on other new incentives. Look at AccountingWeb’s “New Deduction Strategies for Charitable Contributions”, Apr. 17, and “What Tax Breaks Does the CARES Act Offer for Charitable Giving?”, Apr. 23.

I’ll end on a personal note. The Penn Wharton (University of Pennsylvania) Budget Model estimates that the $300 provision will cost Uncle Sam about $2 billion and “increase charitable contributions in 2020 by about $110 million.”

No, Dear Readers, “110” isn’t a typo. Heaven forfend.

Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 350 and counting). 

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