2020 is coming to a close and we all know what that means–it’s time to talk taxes. No, really! While tax policy may not be first thing that comes to mind when we think of the month of December, this year more than any other is an especially important time to turn our eyes toward our tax code and how it works for us. January is right around the corner and before we know it, it’ll be time to sit down with our W-2’s to figure out everything from Adjusted Gross Incomes to whether or not we need to itemize any deductions.
This year is especially important for tax policy because of a little-known provision passed through the CARES Act. The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, is an economic stimulus bill signed into law in March of 2020. While the sprawling $2.2 Trillion piece of legislation provided much needed relief to American businesses and individuals, it also provided for a universal charitable deduction of up to $300 for all taxpayers, regardless of whether they itemize their taxes or not. This provision applies to all charitable contributions made in 2020 and is set to expire at the end of this year.
Under normal circumstances, tax payers are usually required to itemize their deductions in order to take advantage of the charitable giving incentive. In prior years, Americans who chose to itemize could deduct their gifts to qualifying nonprofit agencies from their taxable income, which effectively reduced the amount of taxes they were required to pay. Since its inception, the deduction has helped drive a culture of philanthropic giving in our country which has resulted in Americans giving more to charity on average than any other nation.
For practitioners in the nonprofit field, the charitable deduction is a key driving force that motivates many tax payers to give on a regular basis. These contributions give nonprofits like United Way and others the ability to provide needed services in our communities and help keep families afloat during times of economic crisis. As a national network, United Way raises about $3.5 Billion a year from our corporate partners, unions, and wealthy individuals. However, a little over $1 Billion of that comes from five million individuals who give on average $155 per year.
Most people who give at the $100- and $200-dollar level usually don’t itemize their taxes, instead opting to take the larger standard deduction, which is about $12,000 for an individual. This larger standard deduction precluded many of them from taking advantage of the charitable deduction. While we know that people give for various reasons whether it be driven by their faith or desire to give back to their community, we also know that tax incentives can be the nudge some people need to give for the first time or maybe even give a little more.
Thanks to the $300 universal charitable deduction provided by the CARES Act, more people than ever can access one of the largest and most successful incentives to give to charity.
As COVID-19 continues to cause economic disruption throughout our communities, an increasing number of families are turning to our nonprofit safety-net providers to access basic needs like food, clothing and help with rent. United Way Bay Area is doing what we can to meet as many of these needs as possible through our COVID-19 Relief Fund and Rental Relief Fund. But these efforts are largely dependent upon donations from members of our community, whether they be $1,000 or $100 dollar donations.
The $300 universal charitable deduction is only available for contributions made in 2020–so now is the time to take advantage of it. At the end of the day though, this isn’t about taxes and deductions and itemizing. This is about fostering the culture of philanthropy that makes us such a generous nation and caring community. This is about helping families and individuals who are in economic crisis. This is about having the ability to provide critical services in our communities when they’re needed most. We would all do well to keep that in mind as we bring 2020 to a close and prepare for another year ahead.