A special tax deduction will reward taxpayers who made charitable donations last year.
Many Americans likely made eligible donations recently, with December being the most popular month for charitable giving, according to data from philanthropic research firm Blackbaud. In fact, a recent Fidelity survey found many Americans gave even more last year than they did in 2020.
Taxpayers who take the standard deduction can claim a deduction of up to $300 for cash contributions to qualifying charities made in 2021. Married couples filing jointly can claim up to $600. Whether you’re gifting a donation on a loved one’s behalf or you want to give back to a cause you support, you may be eligible for the special deduction on your cash donations this upcoming tax season.
Here’s what you need to know to determine if your donations are eligible and how to qualify for the special deduction this tax season:
What is the Special Tax Deduction?
Last year, the CARES Act legislation passed in response to the pandemic included a special tax deduction that allowed single and married tax filers to claim up to $300 in cash charity donations.
When the Taxpayer Certainty and Disaster Tax Relief Act of 2020 was passed last December, it extended this special deduction through 2021. This year, individuals can still claim up to $300 in deductions for eligible cash donations, and married couples can get up to an increased $600 when filing jointly.
In previous years, deductions for charitable contributions were only available for people who itemize their tax returns. But the special deduction is available for anyone who takes the standard deduction, which the IRS says is nine out of 10 taxpayers.
But that doesn’t mean you’ll get the full $300 (if you’re single or married filing individual returns) or $600 (if you’re married and filing jointly) back. Instead, the charitable tax deduction will help reduce your overall taxable income and, therefore, the taxes you’re obligated to pay.
Even if you donate only $50 or $100 this year — or any other amount — you can still claim deductions less than the maximum $300 or $600 to help reduce the amount that you may owe.
What Donations Are Eligible?
Any cash contributions you make to qualifying charitable organizations in 2021 count toward the special deduction.
This includes donations made by check, credit card, or debit card. And while the value of volunteer services are not eligible, contributions can include unreimbursed out-of-pocket expenses from volunteering with a charity.
Your cash contributions are also only eligible if they’re made to qualifying charitable organizations. These include tax-exempt nonprofits that have 501(c)3 status with the IRS, which you may find on the organization’s website. Donations to individuals or GoFundMe pages, for example, are not eligible. The IRS has a Tax Exempt Organization Search tool you can use to find out whether an organization qualifies.
Anytime you donate to charity, remember to ask for an acknowledgment to include with your tax return. This can be a receipt, thank-you letter, or even email response from the organization.
Certain charitable contributions don’t qualify for the special tax deduction — including contributions that aren’t monetary. Here are a few examples of ineligible contributions:
- Value of household items that you give to nonprofits, like Goodwill
- The value of your volunteer time or service, like time spent organizing a toy drive or giving out nonperishable food items
- Contributions toward a donor-advised fund
- Donations to a charitable remainder trust or most private foundations
- Cash donations from previous years don’t count toward this year’s tax deduction
Even though you cannot claim volunteer time or donated household goods toward the special deduction, it’s still a great way to give back this holiday season. And if you do plan to itemize your returns rather than take the standard deduction, you may qualify to deduct noncash donations on your tax return.
Who Benefits from the Special Deduction?
While a small number of taxpayers who itemize their returns have long been able to claim charitable contributions, this special deduction benefits those who take the standard deduction — the vast majority of taxpayers. For tax year 2021, the standard deduction is $12,550 for those single and married filing individually, and $25,100 for married couples filing jointly.
Most taxpayers can benefit from the charitable donation deduction, says Joanne Burke, CFP, founder of Birch Street Financial Advisors, but she names two groups in particular who may have a bigger advantage.
“I see it being so wonderful for younger people and retirees,” she says.”Those are the folks that I typically see taking the standard deduction,” Burke says.
Keep Records of Your Giving
If you plan to take advantage of the special tax deduction this year, make sure you keep a record of any eligible donations you make.
A few accepted ways to show proof include a letter from the charity, a canceled check, or a credit card receipt. The donation record must show the name of the organization, the amount, and the date that the donation was made. The IRS also has a full list of qualifying records for your tax return.
And remember that no matter where you donate this holiday season, you can check the IRS’ Tax Exempt Organization tool to determine whether the organization is a qualifying charity.
It’s the season for giving, and the special tax deduction for charitable giving can offer extra incentive to donate this month.
“It’s a perk of giving,” Burke says. “With a pandemic and so many organizations needing assistance, it’s really opened it up to say, ‘Hey, everybody can give and everybody’s going to get a benefit.’”
Maintain records of all the cash donations you make this year, and keep them safe until you’re ready to file your tax return in the spring.