In years past, charitable donations were only beneficial to individuals who itemized their deductions. To itemize, single or married filing separately and married filing jointly taxpayers’ deductions must exceed the standard deduction of $12,400 or $24,800, respectively. With the $10,000 state and local tax limitation and the $750,000 mortgage limitation, this has been more difficult to achieve for many. In fact, only about 1 out of 10 individuals were able to itemize.
However, during the 2020 taxable year, filers were able to deduct $300 of cash donations. For the 2021 taxable year, single and married filing separately filers are able to deduct up to $300 while married filing jointly filers can now deduct up to $600.
What are the requirements to be deductible? It must be a contribution made by cash, check, credit card, or debit card to a qualifying charity. If you are unsure, use the IRS Tax Exempt Organization Search Tool. Eligible deductions also include unreimbursed out of pocket expenses (mileage, parking, tolls, etc.) associated with volunteering.
What does not qualify? It does not include the value of donated service or property, donations to supporting organizations, donor advised funds, most private foundations, and most charitable remainder trusts. Additionally, cash contributions carried forward from prior years do not qualify; the total carryover period for charitable contributions is 5 years. If you are near the end of the carryover period, please discuss tax planning with your tax accountant.
As we close the 2021 tax year, now is the perfect time to donate to your favorite and deserving charities.
Dana R. Borys, an Accountancy Corporation is a boutique tax consulting, compliance, and representation firm working with affluent individuals and owners/officers/founders of start-up/emerging growth companies. Building connections beyond the code.