As the year comes to a close, it’s important to remember that the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) expanded the deductibility of charitable contributions to incentivize charitable giving. Many provisions of the CARES Act that were first enacted in 2020 were extended into 2021 under the Consolidated Appropriations Act (the “CAA”).
Above-the-Line Charitable Deductions – For Non-Itemizers
Prior to the CARES Act, taxpayers who took the standard deduction could not deduct charitable contributions. However, for 2021, individual taxpayers may deduct charitable gifts up to $300 and married couples who file jointly may deduct charitable gifts up to $600. The deduction is only available to taxpayers who do not itemize deductions and for cash contributions made to qualifying public charities. Carry-over contributions and donations to supporting organizations, donor-advised funds, most private foundations, and most charitable remainder trusts do not qualify.
Extension of the Charitable Contribution Limitation – For Itemizers
The temporary suspension of the 60% charitable contribution deduction limitation has also been extended. Therefore, in 2021, taxpayers who itemize their deductions may elect to deduct certain charitable contributions up to 100% of their adjusted gross income. The deduction only applies to cash contributions made to qualifying public charities or a limited number of private foundations in 2021. Contributions made either to supporting organizations, donor-advised funds, most private foundations, and most charitable remainder trusts are not eligible for this election.
If taxpayers contribute more than 100% of their adjusted gross income, they may continue to carry forward any excess charitable contributions for five years, but the enhanced deductibility is set to expire after 2021. Additionally, corporations may deduct qualified cash contributions up to 25% of taxable income in 2021, which exceeds the typical 10% limit.
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