Last year the federal legislation referred to as the CARES Act created several charitable tax benefits for donors. With the stimulus package signed into law on December 27, 2020, the charitable tax benefits available last year were generally extended into 2021. These incentives apply only to cash contributions to public charities and do not apply to contributions to supporting organizations or public charities that sponsor donor-advised funds.
If you don’t itemize deductions, you can still deduct charitable contributions
A special tax provision allows you to easily deduct up to $600 in donations to qualifying charities on your 2021 federal income tax return.
The CARES Act allowed for an additional deduction for charitable cash gifts of up to $300. This provision is extended into 2021 for taxpayers filing single/separately. And, new in 2021 is an additional deduction for those married filing jointly. Joint filers (who aren’t itemizing) will be allowed to take a deduction of up to $600 in cash contributions to charity this year.
Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify for this benefit in 2021.
If you itemize deductions
The adjusted gross income (AGI) limit for cash contributions to qualifying public charities remains increased for individual donors. For cash contributions made in 2021, you can elect to deduct up to 100 percent of your AGI (formerly 60 percent prior to the CARES Act).
Existing carry-over rules still apply, so if your donations this year exceed your AGI deduction limits, you may carry forward excess deductions for up to five subsequent tax years.
If giving from a corporation
The AGI limit for cash contributions also remains increased for corporate donors. In 2021, corporations can deduct up to 25 percent of taxable income (formerly 10 percent prior to the CARES Act).
What about IRA Qualified Charitable Distributions (QCD)?
An IRA charitable distribution (sometimes referred to as a QCD) allows individuals aged 70 ½ or older to make gifts from a qualified IRA plan directly to a charity of their choice. The CARES Act did not change the rules around the QCD. But know that Individuals may donate up to $100,000 a year using the IRA charitable distribution.
Making a gift like this allows you, as a donor, to avoid paying income tax on the IRA distribution as it is paid directly to the charity. And if you are 72 and older, the transfer of funds counts towards your annual Required Minimum Distribution from your IRA.
If you are interested, please contact your IRA custodian. You will need to fill out a distribution form indicating which charity or charities you would like to receive your gift(s). Gifts may be made for a specific purpose, such as capital improvements or Catholic schools, diocesan ministries, or simply given without restriction allowing the charity to use it where it is needed most.
While the CARES legislation only applies to cash contributions, remember another tax advantageous way to give is through appreciated securities. When giving stock or securities (stock, bonds, mutual funds), you may be eligible for a double tax benefit. First, you could receive an income tax deduction for the full, present, fair market value of the assets and secondly, you may completely avoid capital gains tax on the appreciation of your assets. This is one of the easiest gifts you can make and one of the most useful in accomplishing a donor’s philanthropic goals.
General tax reminders
Your gift must be received by the charity or postmarked by December 31, 2021, to qualify for this year’s tax benefits.
Keep good records. Special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Each gift over $250 will require an acknowledgment letter from the charity before filing a return. And retain a cancelled check or credit card receipt for contributions of cash.
I have mentioned this before – but remember I’m not an attorney or a financial advisor – I just love helping to connect generous people like you with important causes and ministries and programs that make a difference. As always, please consult your own financial advisors before making any decisions to gain their specific insights for your situation.
If you have any questions about giving opportunities at the diocese, parishes, schools or ministries, you can contact me at firstname.lastname@example.org or 785.827.8746.