The CARES Act made some significant changes to tax strategies for charitable contributions in 2020 that all taxpayers should be aware of. With everything that's…
The CARES Act provides four temporary options for tax-deductible charitable giving in 2021. Here’s a list of strategies you might want to consider in your year-end tax planning:
If you take the standard deduction, normally you would not be allowed to claim a deduction for your charitable contributions, but in 2021, individuals can claim a deduction of up to $300 for cash contributions made to qualifying charities. Married taxpayers filing joint returns can claim a deduction up to $600.
If you itemize deductions, in 2021 you can claim a tax deduction of up to 100% of your adjusted gross income (AGI), which is an increase from the normal AGI limit of 60%.
With both of the above options, contributions must be made in cash directly to a qualified charitable organization, not to a supporting organization, private foundation, charitable remainder trust, or to maintain a donor advised fund. The election must be made on the 2021 Form 1040 or Form 1040-SR for any given qualified cash contribution in order for the increased limit to apply.
C Corporations can apply an increased corporate limit of 25% of taxable income for charitable cash contributions, rather than the normal 10% allowable deduction. The election must be made on a contribution-by-contribution basis.
Businesses who donate food inventory can claim an increased deduction of 25% rather than 15%, based on the business’ aggregate net income for the year from all trades or businesses from which the contributions are made.
Maintain Accurate Records
In order to claim a charitable deduction, you’ll need an acknowledgement letter from the charity as well as a cancelled check or credit card receipt for cash contributions. More information is available in IRS Publication 526, Charitable Contributions.