Take Away: Don’t forget the above-the-line charitable donation deduction of $300 before the end of 2021 and cash gifts to charities.

Background: To respond to the pandemic and the impact that it had on charities, the CARES Act of 2020 created the opportunity for an individual to gift $300. 00 to a charity and take an income tax deduction, above-the-line, even if the individual claims the standard deduction and does not itemize their income tax deductions.

Above-the-Line Deduction: That above-the-line charitable income tax deduction remains in effect until December 31, 2021. Just like last year, individuals, including married individuals who file separate income tax returns, who claim the standard deduction, can also claim a deduction on their federal income tax return for their charitable cash contributions made to certain qualifying charitable organizations.

  • Maximum Deduction Amount: For married individuals who file a joint return, the maximum  above-the-line deduction is $600.00. For individuals, the above-the-line deduction is $300.00
  • Impact on Tax Liability: This deduction lowers both an individual’s adjusted gross income and their taxable income, which translates into income tax savings for those individuals who make cash donations to qualifying tax exempt organizations.
  • Qualifying Charitable Organizations: Cash contributions to most charitable organizations qualify. However, cash contributions made to either a supporting organization or a donor advised fund do not qualify. Nor will cash contributions to private foundations or charitable remainder trusts. [See IRS Publication 526, Charitable Organizations for the types of organizations that will qualify.]
  • Affects Other Limits: An individual’s other allowed charitable contribution deductions could reduce the maximum amount allowed for this above-the-line Recall that individuals who do itemize their income tax deductions may claim a charitable cash contribution made to qualifying charitable organizations, subject to certain adjusted gross income (AGI) limits. These AGI limits range from 20% to 60% and they also vary by the type of contribution and type of charitable organization.

2021 Cash Gifts: For 2021 only,  the law now permits individuals who itemize their income tax deductions to apply an increased limit, up to 100% of their AGI, for qualified contributions of cash made to qualifying organizations made during calendar.

Corporations:  A C corporation may contribute up to 25% of its taxable income for charitable contributions of cash made to qualifying charities in 2021. However, this charitable deduction is not automatic. A C corporation must formally elect an Increased Corporate Limit on a contribution-by-contribution basis on its tax return. [See IRS.gov/coronavirus.]

Conclusion: No one knows if these rules intended to encourage philanthropy using cash will be renewed in 2022.