The Presidential elections were held recently in November 2020 in the United States. The election season is the time for aggressive campaigning and advertising. During these times, parties pool in money for meeting their huge outlays. A considerable chunk of the citizens in the United States grant monetary help as political contributions to the different political parties or political action committees during the election.

Many might wonder if their monetary contributions towards political parties can assist them in lowering their tax liabilities. Can a person claim his political contributions as a deduction on his income tax return? Let us ponder about this aspect further to help understand the respective tax provisions related to political and charitable deductions in the US.

Are your political contributions deductible on your tax return as per the IRS?

There is a disallowance of the deduction of political contributions for tax purposes to the dismay of many contributors who make generous donations for supporting their desired political candidate. IRS has explicitly outlined that the political contributions are non-deductible for lowering tax liabilities.

One cannot use any payments which he makes for political purposes to lower his taxable income. Such donations or contributions include monetary aid granted for any political party, candidate, campaign teams, political advertising, or political action committees. The disallowance applies to individuals for personal tax return on form 1040 and other business entities who claim business deductions on forms 1120 or 1165.

Limits applicable for Political Contributions

Despite the provision that one is not allowed to deduct political contributions from the taxable incomes, the government has in effect certain limits for individual taxpayers related to how much political contributions they can make. We are enlisting the thresholds applicable to individual taxpayers for payments to different political purposes:

  1. Candidate Committee- Up to $2800 per election.
  2. Political Action Committees- Up to $5000 per annum.
  3. Local Party Committees- Up to $10000 per annum.
  4. National Party Committees – Up to $35000 per annum.

The dilemma between Charitable Contributions and Political Contributions!

There can persist a confusion between political contributions and charitable donations among many taxpayers. People may have a perception that both these contributions are similar and are allowable for tax purposes. However, the IRS has demarcated the tax treatment for these two contributions. Usually, the charitable donations are deductible from the taxable income provided you make such contributions to qualified institutions. Qualified charitable institutes are organizations that are eligible for recognition as a public charity as per the conditions of Section 170 (b) (1) (A)of the revenue code. One can look for eligible charitable institutions using the Tax-Exempt Organization Search Tool, which the IRS offers. If you make contributions to the organization mentioned in the list, you can claim a tax deduction for it.

Are volunteers of political campaigns allowed to claim a deduction of volunteering expenses in their tax returns?

Again, the payments which a person makes as any expenses while volunteering for political parties, PACs, candidates, and campaigns are non-deductible from his total income. Volunteering expenses related to any political cause are disallowed.

On the flip side, the volunteering expenses relevant for any qualified charitable entities are deductible are tax purposes from the volunteer taxpayer’s total income. It is important to understand that the applicable tax provisions do not allow the deduction of the overall value in terms of the time spent on volunteering activities or the service offered as a volunteer for charitable purposes. One can only claim expenses incurred during the volunteering initiatives, which the charitable institute does not reimburse to him.

Changes brought forth in the treatment of Charitable Contributions after the advent of the CARES Act in 2020

Before the enactment of the CARES Act, aka Coronavirus Aid, Relief, and Economic Security Act in 2020, taxpayers could get a deduction for their charitable contributions only if they itemized such deductions in their tax returns.

One must choose between claiming standard deductions or itemized deductions as per the US’s federal tax laws. Itemized deductions are expenses that qualify for tax purposes and are deductible from the adjusted gross income. Large medical expenses, student loan interest, or charitable donations fall under the category of itemized deductions.

After the arrival of the CARES Act, there is a revision in the provisions related to the deduction of charitable contributions. A person can claim non-itemized deductions made in the form of charitable donations up to a certain limit.

As per the provisions included in Section 2104 of the CARES Act 2020, certain individual taxpayers can claim a deduction for donations up to $300 made to qualified charitable entities even if they are not itemized. Hence, while claiming a deduction for such contributions, there is no need to file a Schedule A for itemized deductions. One can directly report the charitable contribution as an adjustment to the total income on the Schedule 1 of Form 1040 and deduct it from the gross income. Still, contributions in non-cash property are not allowed as an above-the-line deduction but can be claimed as an itemized deduction.

It is necessary to understand that any contribution above the limit of $300 is not eligible to be carried forward to the following tax years or be categorized as itemized deductions as per the general provisions. Also, the carried forward itemized deductions from preceding years are not eligible for treatment as above-the-line items in 2020.

Low-income individuals and married couples might face some issues while claiming the above-the-line deductions. They can consult a tax professional before reporting such deductions.

Revised Annual limits in 2020 for Charitable Deductions

  • Limits as per CARES Act for Itemizers in 2020

The ceiling on the sum of charitable contributions made in 2020 is suspended as per the CARES Act. The deduction is now limited to 100 percent of the contribution base of the taxpayer’s income. It is believed that this move will enable different charitable organizations to receive more contributions during the troubling times from the high-income taxpayers

According to the Tax Cuts and Jobs Act 2017, the taxpayers who claim non-itemized deductions can get charitable contributions up to 60 percent of their adjusted total income. One is allowed to get a deduction for the excess philanthropic contributions above the stated limit in the successive tax years.

But, only for the tax year 2020, the CARES Act has enabled itemizers to claim up to 100 percent deduction of their Annual Gross Income.

  • Limits as per CARES Act for Corporate Entities in 2020

The Tax Cuts and Jobs Act levied limits on the sum of yearly charitable contributions corporations can make. Generally, only 10 percent of the taxable income is allowed for donations to charitable entities. The limit is 15 percent for charitable food contributions.

With the CARES Act, the limit for the tax year 2020 is hiked to 25 percent of the total taxable income. There is also a provision for claiming deductions for donations made in excess of 25 percent in the current year during the next five years.

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