On December 27, 2020, another stimulus package was signed into law to help combat the far-reaching impacts of COVID-19. In many ways, this bill extends the charitable tax incentives enacted by the Coronavirus Aid, Relief and Economic Security (CARES) Act back in March 2020, but it also provides some additional provisions.
As you look for ways to help those in need, be sure to visit our giving guidance page and understand how the following provisions may impact your charitable contributions in the 2021 tax year.
Are you itemizing deductions?
The adjusted gross income (AGI) limit for cash contributions to qualifying public charities remains increased for individual donors. For cash contributions made in 2021, you can elect to deduct up to 100 percent of your AGI (formerly 60 percent prior to the CARES Act).
Not itemizing?
If you, like 90% of tax payers, do not typically itemize your deductions, you may still be able to claim a charitable deduction in 2021.
A temporary change in the law means that single filers can deduct up to $300 for cash contributions made to qualifying charities without itemizing deductions. The deduction is increased to $600 for married individuals filing joint returns.
Interested in corporate giving?
The AGI limit for cash contributions also remains increased for corporate donors. In 2021, corporations can deduct up to 25 percent of taxable income (formerly 10 percent prior to the CARES Act).
Wondering about your Fidelity Charitable Giving Account?
These incentives apply only to cash contributions to public charities and do not apply to contributions to supporting organizations or public charities that sponsor donor-advised funds. However, there have been no changes to existing deductions for contributions made to a donor-advised fund sponsor like Fidelity Charitable. This means you are still able to deduct up to 60 percent AGI in cash and up to 30 percent AGI in appreciated assets contributed to a donor-advised fund.
Existing carry-over rules still apply, so if your donations this year exceed your AGI deduction limits, you may carry forward excess deductions for up to five subsequent tax years. As always, donors should consult with their tax and legal advisors when considering their charitable giving.
What about IRA Qualified Charitable Distributions (QCD)?
The CARES Act did not change the rules around the QCD, which allows individuals over 70½ years old to donate up to $100,000 in IRA assets directly to charity1 annually, without taking the distribution into taxable income.
However, remember that under the CARES Act an individual can elect to deduct 100 percent of their AGI for cash charitable contributions. This effectively affords individuals over 59½ years old the benefits similar to a QCD; they can take a cash distribution from their IRA, contribute the cash to charity, and may completely offset tax attributable to the distribution by taking a charitable deduction in an amount up to 100 percent of their AGI for the tax year.
If you’re planning a large donation in 2021, this may be a smart strategy as long as you are between the ages of 59½ and 70½ and are not dependent on existing retirement funds.
1 – Sponsoring organizations with donor-advised fund programs are not qualifying charities for QCDs.
The tax information provided is general and educational in nature and should not be construed as legal or tax advice. Fidelity Charitable does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Charitable deductions at the federal level are available only if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of the information provided. As a result, Fidelity Charitable cannot guarantee that such information is accurate, complete, or timely. Tax laws and regulations are complex and subject to change, and changes in them may have a material impact on pre- and/or after-tax results. Fidelity Charitable makes no warranties with regard to such information or results obtained by its use. Fidelity Charitable disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Regardless of your answer, there may a time when your charitable contributions made in a tax year exceed the amount that you can deduct on Schedule A of your Form 1040 for the year. The deduction for most charitable contributions is limited to 60% of your adjusted gross income (AGI). Note: there are some other percentages that can come into play if the item given away is capital gain property or the contribution is not made to a public charity – we are not covering that here.
So, what happens if your income for a year suddenly drops and you have already given away more than 60%? Do you lose the benefit of the tax deduction?
And the answer to that is a resounding, but qualified, no! The contributions can be carried over for five years. However, and this is a big however, the carryover contributions cannot be considered until any contributions from the current year have been considered.
Let me explain this with some numbers (I am an accountant – I like numbers). Pretend you have contributions that you could not use in 2018 and are carrying them over in the amount of $24,000. You also just contributed in 2019 to your favorite charity in the amount of $24,000. That is $48,000 total available that you may be able to deduct on your 2019 Schedule A, subject to the 60% AGI limitation.
If your 2019 AGI is $40,000, then the allowable amount of charitable contributions would be $24,000 (60% of your 2019 $40,000 AGI). But not the $24,000 from 2018 – the $24,000 from 2019. That leaves just four more years on your 2018 charitable carryover before you lose it.
Alternatively, pretend your 2019 AGI is $60,000 – the allowable amount of your charitable contribution would be $36,000 (60% of the $60,000 AGI), which would consist of the $24,000 from 2019 and $12,000 of your carryover from 2018, leaving you with a $12,000 charitable carryover to 2020 from 2018 and none from 2019.
Don’t Miss: How the recent CARES act alters charitable contribution tax deductions
I know – this is all as clear as mud. But if your reasons for making charitable contributions lean more towards the deductibility on your income tax return than altruistic reasons, then keep one eye on your AGI when you are writing a check to your favorite charity.
For additional information on how to take advantage of tax deductions of any kind, feel free to contact a Henry+Horne tax professional who is eager to assist you.
Donna H. Laubscher, CPA