Why You Should Max Out Charitable Giving in 2021 by Adam Cohen, CPA
Posted on October 20, 2021
by
Adam Cohen
Giving money to charity enables you to support the issues, organizations and causes that are important to you. Not only do these efforts fill you with pride and gratitude, but they may also enable you to reduce your tax liabilities, especially for tax years 2020 and 2021.
Individual Taxpayers
Among the provisions included in the various COVID-relief bills enacted into law are expanded charitable deductions for taxpayers who itemize their deductions and for those claiming the standard deduction. This is a departure from existing law, which under the Tax Cuts and Jobs Act (TCJA) limited charitable tax deductions to no more than 60 percent of taxpayers’ adjustable gross income (AGI) and applied only to taxpayers who itemize their deductible expenses.
For tax years 2020 and 2021, taxpayers who itemize their deduction can write off 100 percent of the cash contributions they make to qualifying nonprofits, including publicly funded charities and certain foundations. Moreover, individual taxpayers claiming the standard deduction of $12,550 in 2021 may deduct from taxable income up to $300 in cash contributions to qualifying nonprofits. The maximum amount of the charitable deduction for married taxpayers filing joint returns and claiming a standard deduction of $25,100 in 2021 increases to $600. This is welcome news to the nearly nine in 10 taxpayers who claim the standard deduction each year.
The IRS defines charitable cash contributions as those made by check, credit card or debit card to qualifying nonprofit organizations. Donations of clothing, household goods or securities do not qualify. In addition, the IRS specifically excludes from this relief cash contributions made to charities carrying out their exempt purposes by supporting other exempt organizations or to establish or maintain donor advised funds. Also excluded are cash contributions carried forward from prior years, cash contributions to most private foundations and most cash contributions to charitable remainder trusts.
To ensure you receive the full tax benefit of your philanthropic efforts, you may consider bundling together two or more years of charitable donations into the current year. This strategy of bunching several years of charitable gifts into one year can help you exceed the threshold for itemizing in that year and provide you with the benefit of a deduction for the full value of your donation.
Unless an individual makes the election for any given qualified cash contribution, the usual percentage limit applies. Keep in mind that an individual’s other allowed charitable contribution deductions reduce the maximum amount allowed under this election. Eligible individuals must make their elections with their 2021 Form 1040 or Form 1040-SR.
Business Taxpayers
In 2021, the maximum deduction available to C corporations making charitable donations of cash to qualifying nonprofits increases from 10 percent to 25 percent of taxable income.
Businesses may also receive in 2021 larger deductions for contributions of food to qualifying organizations, including those providing services to children, the ill and the needy. For example, the limit on such deductions for C corporations increases from 15 percent to 25 percent of taxable income. The 25 percent limit for other types of businesses, including S corporations and partnerships, is based on their aggregate net income from all trades or businesses from which they make those charitable donations.
About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency while complying with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or info@bpbcpa.com.
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