Much has been made of support like the Paycheck Protection Plan and Employee Retention Tax Credits that arose from Congressional efforts to address the economic impact of the COVID pandemic.
However, from a tax standpoint, there are some less known provisions that can affect how your donors treat their contributions.
As we head into year-end giving, you'll be engaging with donors and asking for their continued support. Being aware of the tax provisions below could come in clutch during these crucial conversations.
Charitable Deductions For Those Who Do Not Itemize Deductions
Individuals, married couples and 501©3 charities will benefit by knowing about the following deductions for 2021:
- In 2021 individuals who do not itemize deductions can deduct cash contributions of up to $300.
- For 2021, this above-the-line deduction is increased to $600 for married couples filing jointly who do not itemize tax deductions.
- As in 2020, this deduction is particularly helpful to 501©3 charities as it does not apply to cash contributions made to private foundations, donor advised funds or supporting organizations, or to split interest trusts like charitable remainder and lead trusts. It also does not apply to carry-over contributions.
Increased Limits on Contribution Amounts
Individuals who itemize deductions and corporations who deduct charitable gifts will want to know (and take advantage!) of these expanded deductions:
- In 2021 individuals who DO itemize deductions can deduct cash contributions of up to 100% of their Adjusted Gross Income (AGI).
- Individual taxpayers can continue to carry forward any excess charitable contributions for five years, but the expanded 100 percent deduction limitation expires after 2021.
- In 2021, corporations may continue to deduct charitable gifts up to 25 percent of the corporation’s taxable income (increased from 10 percent).
Qualified Charitable Distributions
Donors with IRA assets who are either over 59 1/2 years of age or over 70 1/2 may be interested to know:
- The CARES Act did not change the rules around the Qualified Charitable Distributions (QCD), which allows individuals over 70½ years old to donate up to $100,000 in IRA assets directly to charity annually, without taking the distribution into taxable income.
- Remember 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; 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.
As always, the tax treatment of contributions is something for the donor and their own tax counsel to determine. However, keeping these provisions in mind when structuring your asks between now and the end of year asks could be exceptionally helpful to both your donors and your organization.
If you have specific questions as you face year-end contributions, please reach out to our team and we will be happy to talk through any questions.