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Charitable Tax Deductions: An Additional Reward for the Gift of Giving

·5 min read

Charitable tax deductions let you donate to a good cause and cut your tax bill at the same time. And, because so many lives across the globe have been devastated by the coronavirus pandemic and related restrictions on businesses, your donations to charity are need more than ever this year. Stimulus payments and enhanced unemployment benefits only go so far for people who are really in need.

And those who do give a gift will also receive one…in the form of a tax deduction. This year (as for 2020), Americans who donate to charity will receive a charitable tax deduction whether they itemize or take the standard deduction. Plus, if you itemize, you can deduct more for 2021 donations than what's normally allowed. So, break out your checkbook or jump online and send a donation to your favorite charity today. Read on to see how you'll be rewarded.

$300 Deduction If You Claim the Standard Deduction

For the 2021 tax year, people who take the standard deduction can deduction up to $300 of cash donations to charity. Note the emphasis on the word "cash" – this deduction isn't available if you donate a car, clothing, food, furniture, or any other property. Donations to donor advised funds and certain organizations that support charities are not deductible, either. Contributions carried forward from prior years and most cash contributions to charitable remainder trusts are excluded, too.

The $300 amount is per person. So, if you're married and filing a joint return, you can deduct a total of $600 on your 2021 tax return (which you'll file in 2022). The deduction won't reduce your 2021 adjusted gross income, though.

This new deduction was originally allowed for 2020 returns only. However, the recent COVID-relief and government spending bill extended the $300 charitable deduction for non-itemizers for another year. There are some differences between the 2020 and 2021 deduction, though. For instance, the maximum deduction for joint filers is $300 for 2020 returns. The 2020 deduction also reduces your AGI.

Charitable Deductions for Itemizers

As always, people who itemize deductions can generally write off gifts to charity this year on Schedule A of their 2021 tax return. In addition to cash contributions, itemizers can also deduct the fair market value of donated property and out-of-pocket expenses paid to do volunteer work for a charitable organization. For example, if you drove to and from volunteer work, you can deduct the actual cost of gas and oil or 14¢ per mile, plus parking and tolls. You can't deduct any amounts that are reimbursed, though. For tips on determining the fair market value of donated property, see IRS Publication 561.

There are certain hoops you might have to jump through before claiming a Schedule A charitable deduction. For instance, for gifts of $250 or more, you must get a written acknowledgment from the charity stating (1) the amount of any cash donation and a description (but not value) of any donated property, and (2) whether the charity gave you any goods or services in return for your contribution. If you donate property worth $500 or more, you have to submit Form 8283 with your return. If you donate a motor vehicle, boat, or airplane worth over $5,000, you might have to get the property appraised, too. There are other requirements that need to be satisfied, so make sure you read the Schedule A instructions carefully before claiming a charitable deduction.

The amount you can deduct can be limited or reduced, too. For example, if you make a gift and receive a benefit in return – such as food, entertainment, or merchandise – you generally have to subtract the value of the benefit from your deduction. If you donate property to certain charitable organizations, your deduction might be limited to 50% of your AGI. There's also a 30%-of-AGI limit for capital gain property contributed to certain organizations. Again, check the Schedule A instructions and IRS Publication 526 or additional limits.

One limit that you won't have to worry about for 2021 donations is the 60%-of-AGI limit on cash contributions. That limit was removed last year for the 2020 and 2021 tax years (although there's still a 100%-of-AGI limit on all charitable contributions). However, as with the $300 deduction for non-itemizers, this tax relief measure doesn't apply to donations to donor advised funds and supporting organizations, or to most cash contributions to charitable remainder trusts.

Charities Accepting Tax Deductible Donations

Even though your donation may be used for a good cause, that doesn't necessarily mean that you can deduct it. Only contributions to certain charitable organizations are deductible. For example, if you gave money through a GoFundMe page to help a local business that's struggling during the pandemic, you probably can't deduct that donation.

Fortunately, there's an easy way to determine if donations you make to an organization are tax-deductible charitable contributions. The IRS's online "Tax Exempt Organization Search" tool will tell you if an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.