The CARES Act of 2020 provided charitable incentives to encourage additional giving from those who could afford it and the 2021 Consolidated Appropriations Act (CAA) extended and increased many of those 2020 CARES Act provisions. Below is a breakdown of how the extended tax benefits may apply to OAFP Foundation donors in 2021.
For those who do not itemize deductions, cash donations up to $300 to qualified charities are still deductible while taking the standard deduction in 2021. This benefit has been enhanced from 2020 by allowing $600 for taxpayers filing jointly, though these deductions will not continue to be “above the line” in 2021.
For those who do itemize deductions, this is the time of year when savvy advisors suggest additional charitable donations to offset capital gains and boost itemized deductions. In 2021, the adjusted gross income (AGI) limitation for cash contributions to qualified public charities (normally 60% of AGI) remains increased to 100% of AGI. This means very generous donors will be able to make more or larger cash gifts in 2021, while still benefiting from the charitable deduction, which can still be carried over up to five years. The limit to private foundations and donor-advised funds (DAF) remains at 60% of AGI.
Tax-Wise Alternatives to Cash Giving
Give from your IRA. A popular option to consider for those 70½ and older is a qualified charitable distribution (QCD) from a traditional IRA or similar tax-deferred retirement plan. In 2020, the required minimum distribution (RMD) was suspended, but this is not the case in 2021. Whether you are itemizing deductions or taking the standard deduction, those aged 70½ and older can limit their taxable income by directing up to $100,000 per year tax-free from their IRAs to charities through QCDs. Or those who itemize deductions can use charitable deductions to help offset the tax liability when converting traditional tax-deferred retirement plans to a Roth IRA.
As you consider year-end gifting and potential contributions to the OAFP Foundation, please factor in the above strategies. We encourage you to consult your professional advisor regarding your specific tax circumstances.