You probably know that you can get an income tax deduction for a gift to a charity if you itemize your deductions. But there is a lot more to charitable giving. We would like to take the opportunity to introduce you to some of these requirements and tax-saving techniques.

Nonitemizers

The Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed an above-the-line deduction for up to $300 paid to charity which non-itemizers could take in the tax year 2020. But, for 2021, the deduction is now moved down the return and used in calculating taxable income. No longer an above-the-line deduction in calculating adjusted gross income.

Individuals can take a $300 deduction against taxable income even if they do not itemize. In the case of a married-filing-joint return, this bumps up to $600.

The contribution must be made in cash. The cash must be contributed to churches, nonprofit educational institutions, nonprofit medical institutions, public charities, or any other organization.

Itemizers

For the tax year 2021, an individual may deduct any qualified charitable contribution as long as the contribution does not exceed the individual’s adjusted gross income.

An individual may carry forward any qualifying cash contributions that exceed his or her adjusted gross income for five years. Partners in a partnership and shareholders in an S corporation may deduct qualified charitable contributions that do not exceed their adjusted gross income.

Contributions to certain private foundations, veterans’ organizations, fraternal societies, and cemetery organizations are limited to 30% of adjusted gross income. A special limitation also applies to certain gifts of long-term capital gain property.

Taxpayers over 70 ½ years of age are allowed an exclusion from gross income for distributions from their IRA made directly to a charitable organization of up to $100,000 ($100,000 for each spouse on a joint return). A qualified charitable distribution counts toward satisfying a taxpayer’s required minimum distributions from a traditional IRA.

Contributions must be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method. Your donations must be documented.

Generally, a bank record or written communication from the charity indicating its name, the date of the contribution, and the contribution amount is adequate. If these records are not kept for each donation made, no deduction is permissible. Remember, these rules apply no matter how small the donation.

At the End of the Day

Please do not hesitate to contact us if you have any questions about any of the matters raised in this article. Holden Moss CPAs is dedicated to aiding individuals and businesses during this difficult time.

We will provide you with all the tools and information necessary to succeed. Give us a call at (919) 556-6216. Contact us via email at admin@holdenmoss.com. We look forward to working with you.