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Expanded 2021 IRS tax benefits now include charitable giving

Posted on October 8, 2021

The Taxpayer Certainty and Disaster Tax Relief (CARES) Act of 2020, enacted last December, provides several provisions to help individuals and businesses who give to charity.

According to Mike Poynter of Teipen CPA Group, the new law extends through the end of 2021 and includes four temporary tax changes, including:

Deduction for individuals who don’t itemize

Ordinarily, individuals who elect to take the standard deduction cannot claim a deduction for their charitable contributions. But the new CARES extension now permits claiming a limited deduction on their 2021 federal income tax returns for cash contributions made to qualifying charitable organizations. Since nearly nine out of 10 taxpayers take the standard deduction and could potentially qualify to claim a limited deduction for cash contributions, this extension may benefit many taxpayers.

  • How much can it potentially benefit? Married individuals filing separate returns can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is increased to $600 for married individuals filing joint returns.
  • Cash contributions to most charitable organizations qualify. However, cash contributions made either to supporting organizations or to establish or maintain a donor advised fund do not qualify.
  • Cash contributions carried forward from prior years also do not qualify, nor do cash contributions to most private foundations and most cash contributions to charitable remainder trusts. See IRSPublication 526 for more information on the types of organizations that qualify, or contact your Teipen Group CPA.

What are cash contributions? Cash contributions include those made by check, credit card or debit card as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with the individual’s volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.

Note: There is a 100% limit on eligible cash contributions made by itemizers in 2021

Subject to certain limits, individuals who itemize may generally claim a deduction for charitable contributions made to qualifying charitable organizations. These limits typically range from 20% to 60% of adjusted gross income (AGI) and vary by the type of contribution and type of charitable organization. Ask your CPA about any contributions you are not certain about.

Corporations may also enjoy this charitable contribution extension

The law now permits C corporations to apply an increased limit (Increased Corporate Limit) of 25% of taxable income for charitable contributions of cash they make to eligible charities during calendar-year 2021. Normally, the maximum allowable deduction is limited to 10% of a corporation’s taxable income.

Businesses donating food inventory that are eligible for the existing enhanced deduction (for contributions for the care of the ill, needy and infants) may qualify for increased deduction limits. Check with your Teipen Group CPA to make sure your specific contribution applies to new corporate guidelines.

As always, the IRS reminds individuals and businesses that special record keeping rules apply to any taxpayer claiming a charitable contribution deduction.

Usually, this includes obtaining an acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt for contributions of cash. For donations of property, additional record keeping rules apply, and may include filing a Form 8283 and obtaining a qualified appraisal in some instances.

Need help applying these new guidelines to your personal or corporate situation?  We’re happy to help provide helpful and informative details.