Special Charitable Donations Tax Deduction
As the end of 2021 approaches, the IRS is reminding taxpayers to take advantage of the ability to take a deduction for special charitable donations. Many of our clients may not realize that if they make a cash donation to a qualifying charity before the end of 2021, they can get a deduction of up to $300. Or $600 if the taxpayers are married filing joint.
The best part is that taxpayers do not have to itemize deductions on their tax returns to take advantage of this special charitable donations income tax deduction.
About the special charitable donations deduction
In response to the Covid crisis, many taxpayers have generously donated to charitable organizations in support of the relief effort. To support charitable donations for both Covid and non-Covid related causes the CARES act provided relief to taxpayers who do not itemize deductions. Taxpayers are able to deduct cash contributions made to charitable organizations without the need for itemizing their deductions. For 2021, the deduction is limited to $300 per person.
Ordinarily, people who choose to take the standard deduction cannot claim a deduction for their charitable contributions. But this special provision permits them to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to qualifying charitable organizations by December 31, 2021.
To qualify for the special deduction, the taxpayer must make a donation directly to a qualified charity. In addition, the donation has to be made in cash (credit cards and checks are considered cash).
More deduction for taxpayers who itemize
Taxpayers who itemize are allowed to claim any additional contributions as itemized deductions. In addition, taxpayers who itemize their deductions are not subject to any caps on the amount of donations. The CARES Act, suspended the usual 60 percent Adjusted Gross Income (AGI) limitation for cash gifts made to public charities in 2020. In other words, the amount of charitable donations that were deductible generally could not exceed 60% of an individual’s AGI. That limit has been temporarily suspended and taxpayers are allowed to deduct up to 100% of their income as a charitable contribution. Originally, this relief only applied to 2020, however, this provision has now been extended to donations made in 2021.
Donors should be wary of scams masked as charitable solicitations. Criminals create fake charities to take advantage of the public’s generosity. If your client is unsure whether the organization is legitimate the IRS has a listing on their website. The special Tax Exempt Organization Search tool can help people make sure they donate to a qualified charity.
Cash contributions to most charitable organizations qualify for a deduction. But contributions made either to supporting organizations or to establish or maintain a donor advised fund do not. Contributions carried forward from prior years do not qualify, nor do contributions to most private foundations and most cash contributions to charitable remainder trusts.
Finally, no matter what charity they decide to contribute to this year, remind your clients to keep good records. When they donate, they should obtain a receipt or some type of written acknowledgement from the charity. In addition, they should retain a cancelled check or credit card receipt.
You can find out more about claiming deductions for charitable contributions in the IRS Publication 526, Charitable Contributions.
The staff of PTIN International thank you and your clients for your generosity at this time of year.
We wish all our readers a safe and happy holiday season.
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