Season of Giving - Turning Donations into Tax Deductions
- Deborah Dingess
- Dec 10, 2021
- 2 min read
Now that it's December, it's officially the Season of Giving! Sights of Toy Drives and sounds of Charity Newsie bells fill the air; and while the cold of winter may be upon us, giving during this time of year creates extra warm feelings. Did you know this season of giving also means Uncle Sam giving back at tax time? You can turn your good deeds into good tax incentives that can be beneficial as the Christmas season rolls into Tax season.
The CARES Act introduced tax incentives to encourage giving in 2020, as a result of COVID financial stressors brought on to individuals and businesses. This was extended into the 2021 year. Taxpayers can receive a tax deduction on their income tax return for qualified charitable contributions made during 2021. Prior to the act, in order to be eligible for such deduction, taxpayers would need to itemize deductions. Even itemizing would have limitations. Under the new provision, taxpayers who do not elect to itemize deductions on their return, and instead take the standard deduction, can deduct up to $300 ($600 if filing a joint return) of their qualified charitable contributions.
So what qualifies as qualified charitable contributions? The contributions/donations need to have been made in cash. Don't let that wording mislead you, though. Under IRS language, "cash" includes charitable contributions made by check, debit card and out-of-pocket expenses incurred for volunteering directly with a qualified charitable organization. A qualified organization is defined as a non-profit organization, such as a Church, a non-profit medical or educational institution, and other public charity organizations. Therefore, be sure the organization you're donating to is eligible (this also helps avoiding potential scams).
For tax planning, be sure to keep records of your charitable cash contributions. Bank records, receipts or letters from the donee serve as acceptable records. If contributions are more than $250, you will need what IRS calls an acknowledgement from the qualified organization. Reach out to me or see IRS.gov for more info on this requirement.
Those who itemize deductions can also benefit, as they can deduct 2021 contributions up to 100% of their AGI (Adjusted Gross Income), rather than 60% which was the limitation pre-COVID. Any excess of AGI can be carried forward five years. Additionally, taxpayers who are at least 70 1/2 years old are allowed to exclude IRA distributions from gross income if the distributions were made directly to a qualified charitable organization (limited to up to $100,000 or $200,000 per spouse for a joint return).
It is important to keep in mind this provision is set to expire December 31st; for 2022 tax season, taxpayers will not be able to claim this deduction unless they itemize. Of course, this could change in this ever-changing COVID economic landscape, resulting in another extension, but that's to be determined. As of now, I advise my clients to maximize their 2021 charitable deductions to take advantage of these incentives. Giving for great causes is always a win, and the added tax incentives are just a nice plus.
Please remember, every person's individual tax and financial situation is different, so it is best to reach out to your tax or financial advisor for your specific circumstance. I can help with general questions but can only provide specific advise to clients.
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