2020 was a year that changed many things in our lives and it affects how we prepare our taxes. A few legislative bills were passed to promote charitable giving and provide financial relief stemming from the coronavirus. As you prepare your taxes this season, be sure to review what’s different and how it impacts you. Below are a few we selected to highlight.
- Charitable cash contributions: The CARES (Coronavirus Aid, Relief and Economic Security) Act allows for an additional “above the line” deduction for charitable gifts made in cash for up to $300 for 2020. For folks not itemizing on their 2020 taxes, you can claim this new deduction. 1 For 2021 this was increased to $600 for joint filers and remains at $300 for single filers.
- Increased Adjusted Gross Income (AGI) limit: If you are itemizing deductions, the adjusted gross income (AGI) limit for cash contributions has been increased for individuals. Instead of electing to deduct up to 60 percent of your AGI, you can deduct up to 100 of your AGI for 2020 for cash contributions. 2 This remains in effect for 2021.
- Stimulus checks: As part of the CARES Act the government sent up to $1,200 in the form of a stimulus check to millions of Americans. An additional round of checks were sent at the end of 2020. 3 More will potentially be sent in 2021. The good news is stimulus checks do not count as taxable income.
- Flexible spending accounts (FSAs): For many of you utilizing FSAs for medical expenses and/or dependent care, 2020 may have left you with a hefty unused sum. Congress passed a Covid Relief bill at the end of December which allows FSA participants to carry over unused funds from 2020 to 2021 and 2021 to 2022, or for up to 12 months for companies with fiscal years. For you to take advantage of these changes, your company plan needed to opt into the new rules. 4
The tax information provided is general and educational in nature and should not be construed as legal or tax advice. As always, please seek tax advice from a professional tax preparer familiar with your specific tax situation.
1 How the CARES Act changes deducting charitable contributions - https://www.irs.gov/newsroom/how-the-cares-act-changes-deducting-charitable-contributions
2 Charitable Contribution Deductions, Temporary Suspension of Limits on Charitable Contributions - https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions
3 Treasury and IRS begin delivering second round of Economic Impact Payments to millions of Americans - https://www.irs.gov/newsroom/treasury-and-irs-begin-delivering-second-round-of-economic-impact-payments-to-millions-of-americans
4 Appropriations Act Permits Midyear FSA Elections, Unlimited Carry-Over Amounts Through 2021 - https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/appropriations-act-permits-midyear-fsa-elections-and-unlimited-carryover-amounts-through-2021.aspx