New Charitable Deduction Rules for 2021
Did you know that even if you won’t be itemizing your tax deductions on your 2021 federal tax return that you may be eligible to take advantage of a charitable giving deduction?
In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act added a $300 above-the-line (reduces adjusted gross income) federal income tax deduction for qualified charitable contributions. In 2021, due to the Taxpayer Certainty and Disaster Relief Act of 2020, that deduction for those who are married and filing jointly increases to $600. For 2021, however, this is a “below-the-line” deduction and is an add-on to the standard deduction for non-itemizers. Regardless, donating within the rules reduces the amount of federal income tax you may owe.
The deduction applies to donations made in cash (currency, checks, credit or debit cards, and electronic funds transfers) to operating charities. It does not apply to non-cash contributions like clothing donations to Goodwill. Make sure you obtain and keep a written acknowledgement of your contribution from the charity with your tax records.
If you do choose to itemize your deductions, you may deduct up to 100% of adjusted gross income for cash contributed directly to operating charities. Deduction amounts that exceed this limit can be carried over for up to five tax years. Additionally, the annual deduction limit for cash contributions by a business stays at 25% of taxable income instead of the usual 10% cap.
Not sure how to approach charitable giving or tax planning in the most tax-efficient or impactful manner? Portfolio Solutions® Wealth Planning clients can receive guidance on both charitable giving and tax planning, including the use of Donor Advised Funds, as well as support in many other areas of wealth planning, including:
- Portfolio Construction & Management
- Retirement Planning
- Estate Planning*
- Tax Planning*
- Insurance & Risk Management
- Charitable Giving
- Banking & Credit Management
- Education Funding
- Business Ownership Planning
- Executive Compensation
- Family Support
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