Another Reason to Give This Holiday Season? Consider Recent Expanded Tax Changes

by | Nov 2, 2021 | Donations | 0 comments

If you’re thinking about giving to charity this upcoming holiday season, recent expanded tax benefits may offer you advantages. In September of 2020, federal legislation passed including several provisions to help individuals and businesses give to charity. The new law extends temporary tax changes through the end of 2021.

Deduction for individuals who don’t itemize

Usually if you take the standard deduction, you cannot deduct your charitable contributions. Now, you are permitted to claim a limited deduction on your 2021 federal income tax returns for cash contributions made to certain qualifying charitable organizations.

Individuals, including those filing separate returns, can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021. The maximum deduction is $600 for married individuals filing joint returns.

Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions that are not tax deductible include those:

  • Made to a supporting organization (a charity that carries out its exempt purposes by supporting other exempt organizations, usually public charities)
  • Intended to help establish or maintain a donor advised fund
  • Carried forward from prior years
  • Made to most private foundations
  • Made to charitable remainder trusts

The following exceptions also apply if you itemize your deductions.

100% limit on eligible cash contributions who itemize deductions in 2021
If you itemize, you can generally claim a deduction for charitable contributions to qualifying organizations. The deduction is typically limited to 30% to 60% of your adjusted gross income (AGI) and varies depending on the type of contribution and the type of charity.

The law now allows you to apply up to 100% of your AGI, for calendar-year 2021 qualified contributions. Qualified contributions are cash contributions to qualifying charitable organizations. The 100% limit is not automatic; you must choose to take the new limit for any qualified cash contribution. Otherwise, the usual limit applies.

Corporate limit increased to 25% of taxable income
Business owners – if you are a C corporation, you can apply an increased corporate limit of 25% of taxable income for charitable cash contributions made to eligible charities during calendar year 2021. The increased limit is not automatic, as you must choose the increased corporate limit on a contribution-by-contribution basis.

Understanding how tax laws affect your individual situation can be confusing, but we’re here to help guide the way. Don’t hesitate to contact your financial planner or tax preparer about how these recent changes can affect your individual situation.