November 11, 2021 - The holiday season is upon us, and it’s natural for thoughts to turn toward those in need – especially after a year like this one. Luckily, even the IRS is in the spirit. Those with a little extra left over have long been encouraged to give to good causes through attractive benefits at tax time.
Individuals and couples have many opportunities to support the less fortunate while reducing their tax obligation. While many benefits have been in the Tax Code for decades, some of them offer new details to be aware of for the 2021 tax year. Knowing them now can make a significant difference in April.
Let’s take a closer look at individual tax benefits for qualified charitable giving:
Individuals using the standard deduction can still receive a charitable deduction of up to $300 for Single and $600 for Married Filing Jointly. Only cash contributions qualify for this deduction, excluding contributions to donor-advised funds. This is a dollar-for-dollar deduction in Adjusted Gross Income (AGI), which is used as the basis of a variety of calculations for taxation and benefits eligibility. As always, more opportunities for savings are available with itemization.
If you like to be more thorough and detailed with your deductions, you’re in luck. The charitable deduction for individuals who itemize can offset anywhere from 20% to 100% (2021 only) of the individual’s AGI.
The following types of contributions may be eligible for tax benefits:
Cash contributions made to a qualifying public charity are typically limited to 60% of the individual’s AGI. For tax year 2021 only, individuals making qualified cash charitable contributions may elect to raise their charitable deduction limit up to 100% of their individual AGI.
Before making a noncash contribution, be sure to contact the organization directly and make certain they accept the proposed donation. Depending on the type of donation being made, an organization may have different procedures or require different forms of documentation.
Noncash contributions to qualifying organizations are limited to between 20% and 50% of the lesser of fair market value at time of gift or individual basis in gift. If total non-cash contributions are greater than $500, the individual must file IRS Form 8283, Noncash Charitable Contributions.
Any individual can donate a car, a boat, or an airplane to a qualifying organization, but the organization retains the right to request an appraisal of the gift at the donor’s expense. The individual may be required to file IRS Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes.
The two forms noted above are common and your personal tax accountant can help you complete these forms properly during the preparation of your personal tax return.
Qualifying contributions may generally be made to any of the following organizations:
To verify that an organization qualifies for tax-deductible contributions, you can search for the organization at the IRS Tax Exempt Organization Search website https://apps.irs.gov/app/eos/ and it will let you know the organization's deductibility on your personal return.
If you are planning your charitable contributions, be sure to connect with a trusted advisor.