Considerations for year-end charitable donations

As 2021 comes up on the holiday season, it is time to start thinking about gifts —and not just the ones that will be given to family and friends. With the end of the year right around the corner, now is the time to start thinking about year-end contributions you would like to make to charities, particularly with so many nonprofits continuing to struggle as the COVID-19 pandemic closes in on the two-year mark.

In many cases, charitable donations also mean tax benefits for the gift giver. While a new president and a change of administration typically brings changes to tax laws — and a few minor changes have taken place — congress has yet to pass any major tax changes. Even so, there are a few provisions to be aware of.

  • As part of the Coronavirus Aid, Relief, and Economic Security Act, the government implemented one-time benefits such as the ability for people to deduct as much as 100 percent of the adjusted gross income of charitable cash gifts. With the need among charities remaining high, congress extended this benefit for the 2021 tax year. Ordinarily, individuals who elect to take the standard deduction cannot claim a deduction for their charitable contributions. The law now permits these individuals to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to certain qualifying charitable organizations. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify to claim a limited deduction for cash contributions.
  • The amount that joint filers (who don’t itemize) can deduct for charitable gifts has been raised for 2021, to as much as $600, up from $300 in 2020. The charitable deduction for single filers (who don’t itemize) remains at $300.
  • In order for charitable donations to be eligible for tax deductions, they must be made to qualified 501(c)3 charities, and taxpayers need to be able to provide paperwork proving the legitimacy of such donations. Also, donor-advised funds do not qualify.
  • Qualified charitable distributions remain in place. This allows anyone who is at least age 70 ½ to make a direct transfer from an IRA to a nonprofit, of up to $100,000 per year, without having to pay income taxes on the amount withdrawn.

Please consult your tax advisor for eligibility requirements and guidelines.

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