Enhanced Charitable Tax Breaks For 2021

The Consolidated Appropriations Act, 2021, ushered in 2 new tax changes that will boost donors’ tax deductions for charitable giving this year. But while folks can give more to charity at a lower net cost, penalties have also increased for overstating the value of charitable gifts.

The first change is an above-the-line tax deduction for cash gifts to charities of up to $300 for individuals and up to $600 for joint filers for 2021. It’s an extension of the one-year tax break under the CARES Act, but with an enhancement: a married couple filing jointly can get double the deduction for 2021, if they make $600 in cash gifts (gifts to donor-advised funds and private foundations do not count).

When the standard deduction was increased, fewer people itemized deductions, including charitable gifts. This above-the-line deduction lets non-itemizers take a charitable deduction too. If a married couple filing jointly takes the standard deduction and gives $600 to charity, they’d get the $600 tax break in addition to the standard deduction for 2021. If they’re in the 10% tax bracket, it saves them $60 in taxes. If they’re in the 37% tax bracket, it would be worth $222. An above-the-line deduction reduces your adjusted gross income, and helps you qualify for other tax breaks.

The bill also offers an extension of the charitable contribution limitation for large individual and corporate donors. This includes:

  • The 2020 suspension of the 60% charitable contribution deduction limitation has been extended into 2021 for qualified cash contributions.
  • In 2021, individual taxpayers who itemize tax deductions and who contribute cash to a public charity may deduct up to 100% of their adjusted gross income.
  • Individual taxpayers can continue to carry forward any excess charitable contributions for 5 years, but the enhanced 100% deduction limitation expires after 2021.
  • In 2021, corporations may continue to deduct charitable gifts up to 25% of the corporation’s taxable income (increased from 10%).

The bad news is that penalties have increased for overstating the value of charitable gifts. Moving forward, you may be assessed a penalty of 50% of your total deduction amount, up from 20%, should the IRS find you at fault.

Contact Us: Charitable giving is always in style, no matter what the tax breaks might be. Let us help you plan a portfolio that can help you reach your charitable giving goals, while enabling your estate to maneuver more tax-efficiently.

A key component of our services is our 360° “whole”-istic approach to your financial health. That means a commitment to providing the right products for your needs, explaining the potential risks and returns, and keeping fees at a minimum. We want you to make informed decisions. Feel free to contact us directly at 561-209-1120.

TFG Financial Advisors, LLC is a registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.