How Charitable Donations Can Get You An Extra Tax Deduction This Year
If you are like 87% of declarers that take the standard deduction, you probably don’t think much about deducting charitable donations. However, a provision in last year’s COVID relief plan leavess you do just that, without having to itemize your taxes — up to $ 600 for joint filers. The only problem is that you will have to make your donations before the end of the year 2021. Here is an overview of how it works.
How the charitable deduction rules are different for 2021
Normally it takes itemize your taxes to claim a tax deduction for charitable donations (which, in turn, reduces your taxable income). But most filers don’t itemize – instead, they take the standard deduction of $ 12,550, which usually totals more than the amount of. possible deductions this could be obtained by detailing. For this reason, most people don’t think about their charitable giving at tax time, which could explain why household charitable donations have. fell to its lowest rate in decades.
However, due to the CARES Act, in 2021 you are allowed to itemize charitable deductions – up to $ 300 for individuals and $ 600 for married couples, provided those donations are made before the end of 2021.
Therefore, if you have already donated, remember to claim the deduction at tax time (keep your receipts as well). And if you plan to donate, note that eligible donations must be in cash (that is, currency, credit or debit cards, checks or electronic transfers), as you cannot claim items such as clothing or food, time or services, such as volunteer work. Also, before you donate, be sure to use this IRS Search Tool to see if the charity is eligible to receive tax-deductible charitable donations.
There is a strange wrinkle to charitable giving in 2021, however.
As CNBC’s Kate Dore points out, the deduction is not an “above-the-line” deduction, nor really an “below-the-line” deduction that requires itemized deductions. Instead, this is an unusual third “middle” category. This means that a charitable deduction will still reduce your tax burden, but it will not affect how the IRS calculates your annual gross income (AGI), which is what the federal government uses to determine your eligibility for many eligibility programs.
It’s a subtle distinction, but one worth highlighting if you were relying on a charitable donation reducing your AGI to qualify for the Child Tax Benefit or reduced student loan payments. Either way, it’s always a good idea to claim your charitable donations made in 2021.