You still have time to contribute to a charitable cause and get a break on your 2021 tax return, even if you don’t itemize the deductions.
Special tax relief available to most taxpayers, approved by Congress for fiscal year 2020 as part of the pandemic relief program, has been extended until 2021.
This means that individual taxpayers can claim a deduction of up to $ 300 for cash donations made this year when they file their federal income tax return in 2022. Married couples who file joint income tax returns may benefit. a deduction of up to $ 600, instead of being limited to $ 300. as they were last year, according to the Internal Revenue Service.
Deductions reduce your taxable income, which helps reduce the amount of federal income tax you pay.
Normally, taxpayers cannot deduct charitable contributions unless they itemize them, which means they report each separate deduction on their return and deduct the total. It usually doesn’t make sense to itemize, unless your deductions exceed the “standard” set by the Internal Revenue Service. This is the amount that you can deduct from your income, without any proof.
Most taxpayers now benefit from the standard deduction, as it was roughly doubled following the tax code overhaul in 2017. (The standard deduction for the 2021 tax year is $ 12,550 for a single taxpayer and $ 25,100 for a married couple filing a joint return.) According to the Internal Revenue Service, about 90 percent of tax filers now benefit from the standard deduction and are likely eligible for the special deduction for charitable donations.
To qualify for the additional deduction, donations must be made to an eligible charity and must be paid by cash, check or credit card. Donating goods or volunteering does not count.
The specific amount you will save with the deduction depends on your tax rate, said Susan Allen, senior director of tax practice and ethics at the American Institute of Certified Public Accountants.
Since the amount you can deduct is small, the tax savings can be relatively small. For example, a single person in the 22% tax bracket who donates $ 300 could save about $ 66, Ms. Allen said.
If you’re married, complete a joint tax return, and are in the 22% bracket, you could save around $ 132.
Charitable giving in the United States increased overall last year, by about 5% from 2019, according to an analysis by the data arm of GivingTuesday, a nonprofit that promotes philanthropy. The group’s namesake event is the Tuesday after Thanksgiving, which began in 2012 as a day of charity and public service.
An early analysis from this year’s GivingTuesday, Nov. 30, estimated that donations to the United States were up 9% from a year ago.
âAmericans continue to be very generous,â said Woodrow Rosenbaum, data manager at GivingTuesday.
The impact of the special charitable deduction is unclear, he said, although the group’s analysis in 2020 noted a “small spike” in donations of $ 300 on Dec. 31. “It’s not that the effect is zero,” Mr. Rosenbaum said. of the $ 300 deduction. On the contrary, “it was small and difficult to measure”.
In contrast, the group’s analysis showed a marked increase in donations for amounts of $ 1,200 and $ 2,400 – amounts correlated with the size of federal stimulus payments – in 2020, suggesting that payments played a larger role in charitable giving.
Still, it’s possible that people weren’t aware of the special deduction when it was first offered last year, but are ready to give a gift and enjoy it this season, Mr. Rosenbaum said. The group’s full analysis of global giving in 2021 will be available next year.
Here are some questions and answers about charitable deductions:
Will the special tax deduction be available after 2021?
The deduction is temporary and is expected to end at the end of 2021 – unless Congress extends it again.
What is the deadline for making a contribution?
The deadline to make a deductible donation on your 2021 tax return is December 31.
Keep track of your donation, such as a void check, and a letter from the charity documenting the donation. Written acknowledgment is required for donations of $ 250 or more, Ms. Allen said.
How can I find eligible charities for my donation?
Donations must be made to a qualified nonprofit organization to be eligible for the deduction. The IRS has a tool to find eligible groups, including those who are “for religious, charitable, educational, scientific or literary purposes, or who work to prevent cruelty to children or animals.”
To check if a nonprofit has a good track record, try websites like Charity Navigator and Charity Watch.