9/17/2021
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 enacted December 2020 has provisions to help individuals and businesses who give to charity. The new law extends four temporary tax changes originally enacted in the CARES Act through the end of 2021.
Here is a summary of these changes:
Deduction for individuals who don’t itemize - cash donations up to $600 qualify
Individuals who take the standard deduction ordinarily can't take a deduction for their charitable contributions. The law now allows people to claim a limited deduction on their 2021 federal tax returns for cash contributions made to certain charitable organizations.
Individuals, including married individuals who file separate returns, can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is increased to $600 for married individuals filing joint returns.
Cash contributions to most charitable organizations qualify. Publication 526 - Charitable Contributions has information on organizations that qualify.
Cash contributions made to supporting organizations or to establish or maintain a donor advised fund do not qualify. A supporting organization is a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities. A donor-advised fund is a fund or account maintained by a charity in which a donor can, because of being a donor, advise the fund on how to distribute or invest amounts contributed by the donor and held in the fund.
Cash contributions carried forward from prior years, cash contributions to most private foundations, and most cash contributions to charitable remainder trusts do not qualify.
Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses connected with volunteer services to a charitable organization.
Cash contributions don’t include the value of volunteer services, securities, household items or other property.
100% limit on cash contributions made by those who itemize deductions in 2021
Individuals who itemize can claim a deduction for charitable contributions made to qualifying charitable organizations, subject to limits. The limits range from 20% to 60% of adjusted gross income (AGI) and vary by the types of contributions and charitable organizations. Cash contributions made to a qualifying public charity is limited to 60% of AGI. Excess contributions can be carried forward for up to five years.
The law now lets people apply an increased limit (“Increased Individual Limit”), up to 100% of their AGI, for qualified contributions made during 2021. Qualified contributions are contributions made in cash to qualifying charitable organizations.
Cash contributions to most charitable organizations qualify, but cash contributions to private foundations and most cash contributions to charitable remainder trusts, cash contributions made to supporting organizations or to establish or maintain a donor advised fund do not qualify.
The usual percentage limit applies unless people make the election for any given qualified cash contribution. An individual’s other allowed charitable contribution deductions reduce the maximum amount allowed under this election. Individuals must make their elections with their 2021 Form 1040 or Form 1040-SR.
Corporate limit increased to 25% of taxable income
The law now allows C-corporations to apply an increased limit (Increased Corporate Limit) of 25% of taxable income for charitable contributions of cash they make to eligible charities during calendar-year 2021. Normally, the maximum allowable deduction is limited to 10% of taxable income.
The Increased Corporate Limit does not automatically apply; C corporations must elect the Increased Corporate Limit on a contribution-by-contribution basis.
Increased limits on amounts deductible by businesses for donated food inventory
Businesses donating food inventory that are eligible for the existing enhanced deduction (for contributions for the care of the ill, needy and infants) may qualify for increased deduction limits. The limit for these contribution deductions is increased from 15% to 25% for contributions made in 2021,
For C-corporations, the 25% limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S-corporations, the limit is based on their aggregate net income for the year from all trades or businesses from which the contributions are made. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements.
Recordkeeping
Special recordkeeping rules apply to anyone claiming a charitable contribution deduction. This includes obtaining an acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt for contributions of cash. Additional recordkeeping rules apply for donations of property, including filing Form 8283 and obtaining a qualified appraisal in some cases.
See Publication 526 - Charitable Contributions for details on how to apply the percentage limits and a description of the recordkeeping rules for substantiating gifts to charity