Posted by Fred Lake

Charitable Tax Deductions: An Additional Reward for Giving Gifts.

Charitable Tax Deductions: An Additional Reward for Giving Gifts.

Due to the global pandemic and related restrictions, donations to charities are needed more than ever. And with a charitable tax deduction, your magnanimity will be rewarded.

Charitable tax deductions allow you to donate to a good cause while reducing your tax bill. And because so many lives around the world have been devastated by the coronavirus pandemic and trade restrictions, your donations to charities are needed more than ever this year. The increase in stimulus payments and unemployment benefits so far only goes to people who need them.

And whoever gives a gift will receive one in the form of tax deductions. This year (for 2020), Americans who donate to charity will receive a charitable tax deduction, whether they take the standard deduction or they itemize. If you itemize for 2021 donations, you can deduct more than what is normally allowed. 


Deduction of $ 300 if you claim the standard deduction

For fiscal 2021, people who take the standard deduction can deduct up to $ 300 of cash donations to charity. Remember the emphasis on the word "cash": this deduction is not available if you donate a car, clothing, food, furniture, or other property. Donations to donor funds and certain organizations that support charities are not deductible. Contributions carried forward from previous years, and most cash contributions from other charities are also excluded.

The $300 value is per person. Therefore, if you are married and filing a joint return, you can deduct a total of $600 from your 2021 tax return (which you will file in 2022). However, the deduction will not reduce the adjusted gross income for 2021.

This new deduction was initially only allowed for 2020 returns. However, recent COVID reduction legislation and government spending extended the $ 300 charitable deduction for non-itemizers by one year. However, there are some differences between the 2020 and 2021 deductions. For example, the maximum deduction for contributors is $ 300 for 2020 returns. The 2020 deduction also reduces the AGI.


Charitable deductions for Itemizers

As always, people who itemize deductions can usually write off charitable donations this year on Schedule A of their 2021 tax return. In addition to cash contributions, itemizers may also deduct the fair market value of the donated property and out-of-pocket expenses paid for volunteer work for the charity. 

For instance, if you drive to and from volunteer work, you can subtract the actual fuel and oil price or 14 cents per mile, parking fees, and taxes. However, no refund can be made. 

You may need to overcome certain obstacles before claiming a charitable deduction on Schedule A. For example, for donations of $250 or more, you must obtain written confirmation from the charity stating:

  • The amount of any cash donation and a description (but not the value) of any given property, and 

  • Whether the charity has provided you with goods or services in exchange for your contribution. 

If you are donating properties worth $ 500 or more, you must submit Form 8283 with your return. If you donate a boat, car, or plane worth more than $ 5,000, you may need to have property appraised too. Other requirements must be met, so be sure to carefully read Schedule A's instructions before claiming a charitable deduction.

The amount you can deduct can also be limited or reduced. For example, if you give a gift and receive a benefit in return, such as food, entertainment, or merchandise, you should always deduct the benefit from the deduction. If you donate property to certain charities, the deduction may be limited to 50% of your adjusted gross income. There is also a 30% AGI limit for capital gains held by certain organizations. 

One limit that you won't have to worry about donating in 2021 is the AGI's 60% limit for cash contributions. This limit was removed last year for fiscal years 2020 and 2021 (although there is still a 100% AGI limit for all charitable contributions). However, as with the non-itemizer $300 deduction, this tax reduction measure does not apply to donations to donor-advised funds and support organizations or to most cash contributions to charities remainder trust.


Charities that accept tax-deductible donations

While your donation can be used for a good cause, that doesn't necessarily mean you can deduct it. Only contributions to certain charities are tax-deductible. For example, if you donated money through a GoFundMe page to help a struggling local business during the pandemic, you likely won't be able to deduct that donation.

Fortunately, there is an easy way to determine if donations to an organization are tax-deductible charitable contributions. The IRS's online tool, "Tax-Exempt Organizations# Search," indicates whether an organization is tax-exempt and is eligible for tax-deductible charitable contributions.


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Fred Lake
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