Make 2021 Your “Year of Giving!”
There are significant tax incentives for charitable giving through provisions in the Coronavirus Aid, Relief and Economic Security (CARES) Act that have been extended through 2021. This brief article could help you maximize your year-end gift to Rancho Coastal Humane Society.
You might want to (but need not) itemize deductions this year to get a tax break!
The CARES Act allowed for an “above-the-line” deduction for charitable gifts made in cash of up to $300. This provision is extended into 2021 for taxpayers filing single/separately.
New in 2021 is an additional “above-the-line” deduction for those married filing jointly. Joint filers (who aren’t itemizing) will be allowed to take an above-the-line deduction of up to $600 in cash contributions to charity this year.
Donors who itemize deductions may elect a CARES Act 100% (instead of the 60% cap) of Adjusted Gross Income (AGI) deduction limit for cash contributed directly to operating charities, and deduction amounts above this limit may be carried over for up to five tax years. In addition, the annual deduction limit for cash contributions by a business stays at 25% of taxable income, instead of reverting back to the 10% cap.
If you are not dependent on existing retirement benefits, a Qualified Charitable Distribution (QCD) might be the right way to give!
The CARES Act did not change the rules around the QCD, which allows individuals over 70½ years old to donate up to $100,000 in IRA assets directly to charities annually, without taking the distribution into taxable income.
It is important to remember, however, that under the CARES Act, an individual can elect to deduct 100 percent of their AGI for cash charitable contributions. This effectively affords individuals over 59½ years old the benefits similar to a QCD. Namely, they can take a cash distribution from their IRA, contribute the cash to charity, and may completely offset tax attributable to the distribution by taking a charitable deduction in an amount up to 100 percent of their AGI for the tax year.
If you’re planning a large donation in 2021, this may be a smart strategy as long as you are between the ages of 59½ and 70½ and are not dependent on existing retirement funds.
Please consult your financial advisor and/or tax specialist.