A special tax deduction will reward taxpayers who make charitable donations this year.
And the holiday season is the perfect time to make the most of this tax deduction, with December being the most popular month for charitable giving, according to data from philanthropic research firm Blackbaud. In fact, a recent Fidelity poll found that many Americans are give even more this year than they did in 2020.
Taxpayers who benefit from the standard deduction can claim a deduction of up to $ 300 for cash contributions to qualifying charities made in 2021. Married couples who jointly file a claim can claim up to $ 600. Whether you are donating on behalf of a loved one or want to give back to a cause you support, you may be eligible for the special deduction on your cash donations this coming tax season.
Here’s what you need to know to determine if your donations qualify and how to get the special deduction this tax season:
What is the special tax deduction?
Last year, the CARES Act legislation passed in response to the pandemic provided for a special tax deduction that allowed single and married filers to claim up to $ 300 in charitable cash donations.
When the Taxpayer Certainty and Disaster Tax Relief Act of 2020 passed last December, it extended this special deduction until 2021. This year, individuals can still claim up to $ 300. of deductions for qualifying cash donations; and married couples can get up to a $ 600 increase when depositing jointly.
In previous years, deductions for charitable contributions were only available to people who detail their tax returns. But the special deduction is available to anyone who takes the standard deduction, whether the IRS said is nine out of 10 taxpayers.
But that doesn’t mean you’ll get the full $ 300 back (if you’re single or married and filling out individual returns) or $ 600 (if you’re married and filling out jointly). Instead, the charitable tax deduction will help reduce your overall taxable income and, therefore, the taxes you are required to pay.
Even if you only donate $ 50 or $ 100 this year, or whatever, you can still claim deductions less than the maximum of $ 300 or $ 600 to help reduce the amount you may owe.
Which donations are eligible?
Any cash contributions you make to qualifying charities in 2021 count towards the special deduction.
This includes donations made by check, credit card or debit card. And while the value of volunteer services is not eligible, contributions may include unreimbursed expenses related to volunteering with a charity.
Your cash contributions are also only eligible if they go to qualifying charities. These include tax-exempt nonprofits that have 501 (c) 3 status with the IRS, which you can find on the organization’s website. Donations to individuals or to GoFundMe Pages, for example, are not eligible. The IRS has a Search for a tax-exempt organization tool you can use to find out if an organization qualifies.
Certain charitable contributions are not eligible for the special tax deduction, including contributions that are not monetary. Here are some examples of ineligible contributions:
- Value of household items you donate to nonprofits, like Goodwill
- The value of your volunteer time or service, such as time spent organizing a toy drive or distributing non-perishable food
- Contributions to a donor advised fund
- Donations to a charitable remainder trust or most private foundations
- Cash donations from previous years are not counted towards this year’s tax deduction.
Even if you can’t claim volunteer time or donated household items for the special deduction, it’s still a great way to give back this holiday season. And if you plan to detail your declarations rather than benefiting from the standard deduction, you can eligible to deduct non-monetary donations on your tax return.
Who benefits from the special deduction?
While a small number of taxpayers who detail their returns can long claim charitable contributions, this special deduction benefits those who benefit from the standard deduction – the vast majority of taxpayers. For tax year 2021, the standard deduction is $ 12,550 for singles and married people filing individually, and $ 25,100 for married couples filing jointly.
Most taxpayers can claim the charitable donation deduction, depending on Joanne Burke, CFP, founder of Birch Street Financial Advisors, but specifically cites two groups that may have a greater advantage.
âI see it’s so wonderful for young people and retirees,â she said. âThese are the people I typically see taking the standard deduction,â Burke says.
Keep records of your donations
If you plan to take advantage of the special tax deduction this year, be sure to keep a record of all eligible donations you make.
Some accepted ways of showing proof include a letter from the charity, a void check, or a credit card receipt. The donation file must indicate the name of the organization, the amount and the date on which the donation was made. The IRS also a complete list of qualified records for your tax return.
And don’t forget that no matter where you donate this holiday season, you can check out the IRS Tax Exemption Organizer Tool to determine if the organization is a qualifying charity.
It’s giving season, and the special tax deduction for charitable giving may provide an added incentive to donate this month.
âIt’s an advantage to give,â says Burke. âWith a pandemic and so many organizations needing help, it really opened up to say, ‘Hey, anyone can give and everyone is going to benefit. “”
Keep records of all cash donations you make this year and keep them in a safe place until you are ready to file your income tax return in the spring.