How Charitable Donations Can Bring You an Extra Tax Deduction This Year
If you are like the 87% of tax fillers who take the standard deduction, you probably don’t think much about deducting charitable donations. However, a clause in last year’s COVID relief package allows you to do just that without breaking taxes – up to $ 600 for joint returners. The only catch is that you will need to donate before the end of 2021. This is how it works.
What is the difference between the rules for donations to charity for 2021
Typically, you must list your taxes in order to claim a tax credit for charitable donations (which in turn lowers your taxable income). But most applicants don’t list – instead, they charge a one-time standard deduction of $ 12,550, which is usually more than the amount of possible deductions that would be obtained through detailing. For this reason, most people don’t think about their charitable giving when paying taxes, which may explain why household charitable giving has fallen to its lowest level in decades .
However, under the CARES Act in 2021, you are allowed to make charitable contributions – up to $ 300 for individuals and $ 600 for married couples if these donations are made by the end of 2021.
So if you’ve already made a donation, don’t forget to claim your tax deduction (keep your receipts as well). And if you plan on making a donation, please note that eligible donations must be in cash (i.e. currency, credit or debit cards, checks or wire transfers), as you cannot claim items such as clothing or food, nor may require time or services, such as volunteer work. Also, before making a donation, make sure you use this IRS search tool to find out if a charitable foundation is eligible for tax-free charitable contributions.
However, 2021 charitable giving has one weird twist.
As CNBC’s Keith Dore points out , the deduction is not an “above the line” deduction, nor is it a “below the line” deduction that requires detailed deductions. On the contrary, it is an unusual “intermediate” third category. This means that the charitable deduction will still lower your tax burden, but will not affect how the IRS calculates your Annual Gross Income (AGI), which the federal government uses to determine your eligibility for many benefit programs. It’s a subtle difference, but it’s worth noting if you’ve been betting on a charitable donation by lowering your AGI to be eligible for child tax credit, or reduced student loan payments. Either way, it’s still a good idea to announce your 2021 charitable donations.