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Friday November 26, 2021

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IRS Tips for 2021 Charitable Gifts

In IR-2021-214, the Internal Revenue Service (IRS) encouraged taxpayers to use the special tax provisions for charitable donations in 2021.

The 2021 standard deductions have been increased to $25,100 for married couples and $12,550 for single persons. Individuals over age 65 benefit from an additional $1,700 deduction and married couples both over age 65 add $2,700. Therefore, a married couple of retirement age may have a standard deduction of $27,800. With the enhanced standard deductions stemming from the Tax Cuts and Jobs Act, approximately nine out of ten families do not itemize. As a result, only about 10% of taxpayers choose to itemize.

The IRS reminds taxpayers who take the standard deduction that they can also benefit from an "above-the-line" charitable deduction. Single individuals may deduct up to $300 and the amount is increased to $600 for married couples filing a joint return.

The $300 or $600 deduction includes cash gifts made by check, credit card or debit card. It also may include cash amounts for unreimbursed out-of-pocket expenses for volunteers with a qualified charitable organization. Gifts of securities, personal services, household goods or other property do not qualify as "cash" contributions.

Gifts must be made to qualified charities. To check the status of a charity, use the IRS Tax Exempt Organization Search tool on IRS.gov. Not all organizations may appear in the search tool. There are some charitable gifts that do not qualify for the $300 or $600 deduction. A gift to a donor advised fund, a supporting organization, a charitable remainder trust or a deduction carryforward from a prior year does not qualify.

Taxpayers are reminded to keep appropriate records to substantiate their deductions. Gifts of $250 or more require a contemporaneous written acknowledgment from the charity prior the donor to filing the tax return. Taxpayers should also retain a canceled check or credit card receipt for their cash contributions.

For taxpayers who itemize deductions, it may be beneficial to bunch gifts. Some taxpayers make most of their charitable gifts every other year and then take the standard deduction in alternate years. By "bunching" your charitable gifts, you may benefit from larger charitable deductions in alternate years.

Generous donors are reminded that the option exists to deduct up to 100% of adjusted gross income this year. Some individuals with large retirement plans have taken substantial distributions and are making major gifts to nonprofits. The 100% deductibility limit also requires the gift to be a cash gift to the nonprofit. Gifts to a supporting organization or donor advised fund do not qualify for the higher limit.

Editor's Note: All individuals with charitable intentions should visit with their tax advisors prior to the end of 2021. This is particularly important for those who are planning to make a bunched gift or a major gift.

Published November 5, 2021
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