I’m talking to a lot of clients this month about charitable giving and how to give in the most tax-efficient way possible.
Since Tax Reform took effect in 2018 fewer taxpayers are getting a deduction for their charitable contributions. Donations to charity are deducted when a taxpayer itemizes deductions.
After Tax Reform far fewer people itemize. Only about 10% of taxpayers now itemize. The other ≈90% take the standard deduction.
But in 2020 Congress addedanew tax break for charitable contributions made by taxpayers taking the standard deduction.
In 2020 these taxpayers got to deduct $300 in charitable donations.
This year, 2021, single tax filers can again claim a deduction of up to $300. For married taxpayers who file jointly the deduction is boosted to $600. These tax returns will be filed in 2022.
The details:
- The donation must be made in 2021
- The donation must be cash
- You can use actual cash, check, debit/credit card, electronic fund transfer, or payroll deduction.
- Non-cash donations such as used clothing or appreciated stock cannot be used, however, these can still be used by taxpayers who are itemizing.
- The recipient must be a 501(c)(3) public charity
- To find out ask the charity, or
- Check the IRS Tax Exempt database
- Documentation needed:
- You must have one of the following for any single donation less than $250:
- A bank record such as canceled check, bank statement, or credit card statement that shows the name of the qualified organization, the date, and amount of the contribution. –OR—
- A receipt (or letter or other written communication such as email) from the qualified organization showing the name of the qualified organization, the date, and amount of the contribution.
- For any single donation greater than $250 you must have:
- “Contemporaneous written acknowledgement” of your contribution from the qualified organization.
- Contemporaneous means you received it before the due date of the tax return.
- This written acknowledgement must include the date and amount of the contribution AND whether you received any goods or services as a result of your contribution.
- If you received any goods or services the acknowledgement must have a description and good faith estimate of the value of these items. Those amounts are not deductible.
- If you received any goods or services the acknowledgement must have a description and good faith estimate of the value of these items. Those amounts are not deductible.
- “Contemporaneous written acknowledgement” of your contribution from the qualified organization.
- Note: you should keep the documentation, but it does not have to be filed with your return.
- Note: the crumpled $10 bill you tossed in the church collection plate does not qualify.
- I get pushback about this all the time!
- If you give actual cold hard cash, you need a written receipt.
- You must have one of the following for any single donation less than $250:
The actual value of this $300 or $600 deduction is not huge – the amount of tax saved depends on your tax bracket. For example, if you are Married Filing Jointly in the 22% bracket, the amount of tax saved on the maximum $600 deduction is $132.**
Research shows that tax savings is not a primary motivator for charitable giving. However, giving in a tax-efficient manner means you have more dollars to give.
I love helping people figure out how to give more.
There are so many organizations doing good things, and many of them are having a hard time. If you are able, I encourage you to help however you can.
**For the tax nerds, last year this deduction was “above-the-line”: it lowered Adjusted Gross Income which in turn could affect other AGI-dependent calculations. This year, however, the deduction is below-the-line and does not affect AGI.
