Last year, Congress enacted the Taxpayer Certainty and Disaster Tax Relief Act which featured several provisions designed to reward both individuals and businesses who donated to charity. Enacted in the throes of the pandemic and its immediate impact on the economy, these measures aimed to encourage people to give back to the non-profit groups and organizations working on the front lines to keep our communities safe, healthy and strong.
While these changes may encourage you or your business to support organizations lending a hand to those in need, it’s important to understand how to take advantage of these incentives. Here’s a quick overview of what you need to know about these changes:
What to know if you’re filing as an individual
- $300 deduction for individuals who don’t itemize in 2021: Ordinarily, if you claim the standard deduction, rather than itemize, you can’t claim a deduction for charitable contributions. You can claim a deduction of up to $300 on your 2021 federal income tax returns for cash contributions made to certain qualifying charitable organizations. If you’re filing a joint return, the maximum deduction is boosted to $600.
- 100 percent deduction for individuals who itemize in 2021: Generally, if you are able to itemize, you can claim a deduction for cash contributions to charitable organizations, though the limits typically range from 20 percent to 60 percent of adjusted gross income (AGI), depending on the type of contribution and type of charitable organization. However, for qualified contributions made in 2021, you’re now able to deduct up to 100 percent of your AGI.
What to know if you’re filing as a business
- Corporate limit increased to 25 percent of taxable income: Owners of C-Corporations can now deduct up to 25 percent of taxable income for charitable cash contributions made to eligible charities in 2021. In the past, the maximum deduction has been 10 percent.
- Increased limits on amounts deductible by businesses for donating food: Businesses donating food may qualify for increased deduction limits as well. For 2021 contributions made by a C-Corporation, the limit has been increased from 15 percent to 25 percent. For other businesses, including S-Corporations, sole props and some LLCs, the individual can deduct up to 30 percent of income from the business that generated the deduction on their personal income tax return.
Don’t forget to save all records of your donations and be sure to get an acknowledgment letter from the charity before filing your tax return. You should get an acknowledgment letter from the charity before filing a return and keep a canceled check or credit card receipt for contributions of cash. If you donated property, there might be additional records you need to retain.
Given these changes, and the myriad of record-keeping requirements to seek your deduction, it’s important to work closely with your tax professional when filing your taxes. There’s still plenty of time to take advantage of these new charitable giving rules, and at Padgett Business Services, our network of CPAs, enrolled agents and tax professionals can assist you with charitable giving tax strategies that can minimize your tax burden now and in the future. Find an office near you today to set up an appointment!