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Monday, March 15, 2021

Things you should know when choosing between standard and itemized deductions--especially if a charitable contribution was made in 2020


Deductions reduce the amount of taxable income when filing a federal income tax return. In other words, they can reduce the amount of tax someone owes.

Most taxpayers have a choice of either taking the standard deduction or itemizing their deductions. The standard deduction may be quicker and easier, but, itemizing deductions may lower taxes more, in some situations. For this reason, it's important for taxpayers to look into which deduction method is best suited for them and their family.

New 

Following special tax law changes implemented last year, cash donations of up to $300 made before Dec. 31, 2020, are now deductible without having to itemize on your return. 

The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted in spring of 2020, included several temporary tax changes with the intent to help charities, including the special $300 deduction designed for those who choose to take the standard deduction, rather than itemize their deductions. 

Nearly nine in ten taxpayers now take the standard deduction and could potentially qualify for the new tax deduction. In tax-year 2018, the most recent year for which complete figures are available, more than 134 million taxpayers claimed the standard deduction, which is just over 87% of all filers. 

Under this new change, individual taxpayers can claim an “above-the-line” deduction of up to $300 for cash donations made to charity in 2020. This means the deduction lowers both adjusted gross income and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations.

Cash donations include those made by check, credit card or debit card. They don’t include securities, household items or other property. Though cash contributions to most charitable organizations qualify, some do not, such as donor-advised funds. Check Publication 526, Charitable Contributions, and the TEOS for more information.

The IRS recommends that when you give to a charity to maintain good records. By law, special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes obtaining a receipt or acknowledgement letter from the charity, before filing a return, and retaining a cancelled check or credit card receipt. For details on these recordkeeping rules, see Publication 526, available on IRS.gov.

In addition, the CARES Act included other temporary provisions designed to help charities, such as higher charitable contribution limits for corporations, individuals who itemize their deductions, and businesses that give food inventory to food banks and other eligible charities. For more information about these and other  Coronavirus-related tax relief provisions, visit IRS.gov/Coronavirus.


Here are some details about the two methods to help you decide which deduction  to take:

Standard deduction

The standard deduction is an amount that reduces taxable income. The amount adjusts every year and can vary by filing status. The standard deduction amount depends on your filing status, whether you’re 65 years or older or blind, and whether you can be claimed as a dependent on another individual’s return. Taxpayers who are age 65 or older on the last day of the year and don't itemize deductions are entitled to a higher standard deduction.

Taxpayers benefit from the standard deduction if their standard deduction is more than the total of their allowable itemized deductions. They can use the Interactive Tax Assistant, How Much Is My Standard Deduction? to determine the amount of their standard deduction, and if they should itemize their deductions. 

Itemized deductions 

Taxpayers may itemize deductions because that amount is higher than their standard deduction, which will result in less tax owed or a larger refund. In some cases, they are not allowed to use the standard deduction. 

Tax software can help guide you through the process of itemizing deductions. Taxpayers, who itemize file Schedule A, Form 1040, Itemized Deductions or Form 1040-SR, U.S. Tax Return for Seniors.

You may benefit by itemizing deductions, if any of following apply:

  • Had large uninsured medical and dental expenses
  • Paid interest and taxes on a  home 
  • Had a large uninsured casualty or theft losses 
  • Made large contributions to qualified charities

Individual itemized deductions may be limited. Schedule A, Form 1040, Itemized Deductions can help determine what limitations may apply.

More information:

Publication 501, Dependents, Standard Deduction, and Filing Information
Topic No. 551, Standard Deduction

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Written by Filomena Trujillo-Mealy, Relationship Manager - Tax Specialist, Communication & Liaison for the Tax Outreach, Partnership & Education Branch of the Internal Revenue Service.

Mrs. Mealy received her Bachelor's degree from Rutgers University and has been working with the Internal Revenue Service for over 30 years. Before assuming her current position, she spent time working in many other areas within the IRS. Her responsibilities include developing outreach partnerships with non-tax companies, organizations and associations. 

2 comments:

Unknown said...

Thank you so much for the sharing. All contents were expressed in a clear n simplified manner n it was meaningful too. Patriots for Ohio.

Kyper Washington said...

Tax positions that vary from season to season often suggest that changes made periodically can lead to an uncollected oversight if it is at one's disadvantage just not knowing. If the general public does not take advantage of its current debits credits in the IRS, will they be notified of all credits, breaks and changes automatically or have to pencil in the new change ?