Generally, if a taxpayer doesn't itemize their tax deductions, any charitable donations do not count against their income. However, the Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted last December, extended some tax benefits that individuals and businesses can use if they give to charity. The CARES Act originally enacted these provisions for 2020, but have now been extended, and slightly expanded under this new Act.
According to the IRS, nearly nine out of 10 taxpayers use the standard deduction instead of itemizing due to the changes made in 2018 that nearly doubled the standard deduction. Last year taxpayers were allowed to count up to $300 in cash donations even if they did not itemize. Under the new Act, taxpayers may still count up to $300 in cash donations made in 2021. However, those married filing jointly can now count up to $600. All other filers remain at the deduction of $300.
Donate now while you can still get the extra tax break
With only a few weeks left of 2021, now is the time to think about all the different things you can do to help save on taxes. And giving to a qualified charity might sit better with you than giving the money to the government. To qualify for this special tax break for non-itemizers here are a few things to keep in mind.
The donations must be made with cash. Cash donations include, check, credit card, debit card, as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization.
Cash contributions do not include the value of volunteer services, securities, household items or other property donated.
The charity must be a qualifying organization. The organization should absolutely know if they qualify. Here is a list of donations that would NOT qualify. Donations made:
to a supporting organization.
to establish or maintain a donor advised fund.
carried forward from prior years,
to most private foundations.
to charitable remainder trusts.
Also, you need to be able to prove you in fact did donate. Make sure you get a letter of acknowledgment from the charity, along with a canceled check, or credit card receipt.
An increase for itemizers as well
Taxpayers that itemize can include charitable donations to their tax deductions, but generally with a limit attached. Typically the limit is 20%-60% of their AGI (adjusted gross income). That limit is as much as they can deduct depending on the contribution type, and the type of charitable organization they donate to.
For 2021 the law allows "electing" individuals to apply an increased limit of up to 100% of their AGI for their qualified contributions. Qualified here being the same as for the non-itemizers, cash contributions to qualified charitable organizations. And electing meaning you have to elect this option when filing your tax forms.
Obviously most people aren't donating 100% of their AGI, but hey, if you're feeling generous and don't want to pay taxes then there is an option.
The tax laws are always changing, and last year many did not realize they could count a donation without itemizing. This year may be the last year this provision is allowed. Why not take advantage of it and give your support to a place you believe in while getting a tax break at the same time?