Our Co-Founder Roger Pine sat down with Jeff Levine to talk about what we learned about this deduction.
The CARES Act in 2020 introduced the $300 Above the Line Charity Deduction and really gave our team some research to do. This deduction only applied to filers who didn't itemize and instead took the standard deduction. But because it occurred "above the line", it affected Adjusted Gross Income (AGI), Modified Adjusted Gross Income (MAGI) and pretty much everything else down the chain.
After the CARES Act and other legislation, the deduction ended up being $300 for single and joint filers. But in 2021, Congress came back with the Consolidated Appropriations Act (CAA), which bumped the deduction up from $300 to $600 for MFJ (still $300 for single filers).
In mid-August, 2021, a user asked us to when we planned to fix the deduction for 2021 projections because it’s no longer above the line. Holistiplan relies on our great users for so many things that we know better than to dismiss folks who question our calculations. So we asked for more information, and the user provided pretty compelling evidence that the deduction was in fact not above the line in 2021, and instead was below the line. This means that this charitable deduction no longer impacts AGI/MAGI calculations.
Jeff Levine, Holistiplan’s Tax Strategist, says that if you look at the nitty gritty of the legislation, the initial CARES Act language impacted the section of the tax code that dealt with AGI. The new 2021 Consolidated Appropriations Act (CAA) didn’t. For example, the CAA didn’t say "strike where it previously said 2020 and make it 2020 and 2021," which is how we’d expect the language to look if the deduction was going to be above the line in 2021.
Instead, the CAA changed the tax code section that discusses ITEMIZED deductions. In other words, the CAA says that if someone takes the standard deduction, they can take that additional deduction below the line for $300 (single)/$600 (MFJ). From a planning perspective, this deduction no longer impacts AGI, thought it does impacts marginal tax brackets and the Qualified Business Income deduction calculation.
This isn't the second deduction in a new category of deductions. It is truly below the AGI line. Traditionally, below the line deductions have been synonymous with itemized deductions. This could be an indication of how we edit the tax code. Are we going to continue to not make people itemize to get these additional deductions? Fewer than 10% of all taxpayers itemize now, so is making it an itemized deduction going to help?
If Congress doesn't add the deduction again this year, this could be the end of it. As Jeff Levine said in his chat with Roger, “It’s one of those things that, when you’re giving advice to clients, you want to be giving them accurate information. When it comes to taxes, less is always more. It may not be big dollar item, but if you take care of the smaller things, they’ll know you’ll take care of the big things.”
As best we can tell, we haven't been able to identify a single tax planning program that is accounting for this change. They all suggest that the deduction continues to be above the line. Holistiplan has been all over it, with an accurate fix put in shortly after learning from our user.
As a reminder, tax payers are only eligible for this deduction with cash gifts, and gifts to Donor Advised Funds (DAFs) don't qualify. While these things can always change, it doesn't look like this deduction will continue beyond 2021, but we'll certainly keep on eye on it!
Thank you again to the user who brought this to our attention. It’s heartwarming to know that our subscribers are invested enough in us and what we do that they want us to be the very best. It truly takes a village, and we’re happy you’re a part of it!