As we are getting close to wrapping up 2021, many will be getting in their year-end charitable donations. Before making these contributions, it would likely be in your best interest to review some key changes made to enhance tax breaks for giving during the pandemic, which are set to expire after this year. One change allows a full deduction this year for donors making gifts up to 100% of their income instead of a partial one. Another allows taxpayers who wouldn’t normally get deductions, to secure $300 per single filer and $600 per married couple.
Breakdown
Having these modifications in play makes it an important year to focus on making tax-efficient moves. However, due to these one-year-only enhancements, Congress was sure to add numerous limits and strict requirements for taxpayers looking to catch a break for their charitable giving. Donations will need to be made to a qualified charity, and donors must also have written notice from the charity detailing the gift. Luckily, last-minute donors will not need proof of donation until the tax-filing time in 2022, giving them past year-end to accumulate the necessary documents. For more information on how to claim a deduction for charitable contributions, please see IRS Publication 526.
Cash Donation Rules
For this year only (unless extended by Congress) taxpayers who don’t itemize deductions on Schedule A can deduct cash donations of up to $600 for joint filers and $300 for single filers. A cash donation can include contributions made by check, credit or debit, and electronic fund transfers, among other methods. The $300 or $600 deduction for non-itemizers is below the line, meaning it reduces taxable income, but not adjusted gross income. This break offers benefits to a large pool of taxpayers including the more than 30 million who switched to the standard deduction following the 2017 tax overhaul.
Additionally, and again only for 2021, those who do itemize deductions can benefit from an even larger deduction for their cash donations. For this up to 100% of adjusted gross income can be deducted, which is a very large increase as typically donors can only deduct cash contributions of up to 60% of their income.
Wrapping Up
Cash donations are not the only way to claim a charitable giving deduction, however, they did see the most changes this year. With all of the edits that have gone on, we recommend speaking to your accountant to take full advantage of these limited-time tax-deductible charitable donation enhancements today!