As the year comes to a close, we would like to share some important public information regarding the CARES (Coronavirus Aid, Relief and Economic Security) Act, and how it may effectively strengthen the impact of your charitable giving as you finalize your plans for 2021. Tax law is subject to continual change. The information presented herein is for general educational purposes and is not intended to be a substitute for tax advice.
Why was the CARES Act created?
Due to tax reforms, charitable contributions by individuals have declined in recent years. The Coronavirus crisis has put many non-profit organizations at a great disadvantage, needing more support than ever to continue providing essential services to our communities. The CARES Act was put into place to encourage more charitable giving while providing tax relief to donors.
How does the CARES Act benefit individuals making charitable donations in 2021?
If you take the standard deduction on your 2021 tax return, you can claim a new “above the line” deduction of up to $300 for cash donations to charity made before the end of 2021. This is a change from the past requirement of itemizing on Schedule A to receive a tax break for charitable deductions.
If you do itemize on Schedule A, you can claim a deduction for your charitable donations. Typically, the amount you can deduct for cash contributions is limited to 60% of your adjusted gross income (AGI), allowing any donations over that amount to be carried for up to five years and deducted later. The CARES Act raises the limit from 60% to 100% of AGI for donations made in 2021. Contributions made above the 100% limit can still be carried forward for up to five years.
Are some types of charitable donations ineligible for deductions?
In both cases, donations to donor advised funds and certain organizations that support charities are not deductible. I encourage you to talk with your accounting professional to learn more in detail about the exact charitable giving tax incentives available to you.
We hope this information is helpful to you as you make decisions regarding your charitable giving. We are so grateful for the support that we’ve received during these challenging times, and know that we are blessed to continue providing excellent medical and rehabilitative care to children in need as a direct result of your generous support.