Editor’s note: This article was originally published on December 8, 2021. Find more USA TODAY tax season coverage here.
Charitable giving this holiday season takes on a new, happier meaning when it comes to tax deductions.
Generally, most people cannot get tax relief when giving money to charity if they claim the standard deduction on their federal tax returns. And almost 9 out of 10 taxpayers are taking this standard deduction these days.
Yet pandemic relief in Congress has created a special but temporary pause to donate money to a qualified charity that applies to people who don’t detail.
A married couple benefiting from the standard deduction is allowed to claim up to $600 for cash contributions made to qualifying charities in 2021, if they file a joint return. It is a temporary break, which is due to expire on January 1.
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A single person, including married people filing separate returns, can claim a deduction of up to $300 for cash contributions.
If some of these elements sound familiar, they kinda do.
In 2020 federal income tax returns, cash donations of up to $300 made to eligible organizations were treated as deductible for those who did not itemize.
“The difference this year: Those who jointly file a marriage statement are eligible for a direct deduction of up to a combined total of $600,” said Mark Steber, director of tax information at Jackson Hewitt, the channel national tax preparation.
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News like this can further inspire you to stop shopping for not-so-perfect gifts and instead choose to donate money to a charity that has special meaning for a special someone on your gift list.
This tax break might even inspire you to tell close friends that instead of giving gifts this year, you’d like them to donate money directly to your favorite charity or cause.
Tax savings can be $30 to $222
The amount you save will of course depend on the amount you donate, your taxable income and your tax bracket.
“With tax rates ranging from 10% to 37%, a $600 deduction would amount to $60 in tax reduction for someone in the 10% tax bracket and $222 for someone in the 37% slice,” said Mark Luscombe, principal analyst for Wolters Kluwer. Tax accounting.
“Similarly, a $300 deduction would be worth $30 for someone in the 10% tax bracket and $111 for someone in the 37% tax bracket,” he said.
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Understand the tax deduction rules
Remember that there are limits and restrictions to this deduction for those who do not itemize.
You can deduct cash contributions paid by check, credit card, or debit card. But the IRS notes that “cash contributions do not include the value of volunteer services, securities, household goods, or other property.”
So cleaning the house and donating furniture will not be enough for this one-time tax break.
“It must be a cash donation — not property or your time — and given to an IRS-approved organization, not just a friend who is doing a good job in the community,” Steber said. .
Obtain documents to back up the deduction
And you want proof.
A canceled check is enough to support a charitable donation, Luscombe said. If you are giving real money, you need a written letter from the charity confirming the contribution.
If you donate $250 or more at a time to a group, you need written communication to indicate whether the donor received anything of value in return.
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How about giving more money?
If you itemize, you may qualify for a larger deduction for charitable contributions, including donations of clothing, cars, securities, and larger items.
It’s also good to know that pandemic relief in Washington has temporarily removed some restrictions on the amount of cash contributions you can deduct, if you detail, according to Lisa Greene-Lewis, tax expert and TurboTax CPA.
Usually, the cash donations you can deduct are limited to 60% of your adjusted gross income, but this limit has been temporarily removed for returns for the 2021 tax year, just like for 2020.
As a result, “taxpayers can claim a charitable deduction of up to 100% of their adjusted gross income or AGI in 2021,” said Susan Allen, senior director of tax practice and ethics at the American Institute of CPAs. .
Just because you can give a lot of money doesn’t mean it’s the best tax planning strategy.
Some are better off donating stocks that have been held for over a year and have accumulated good value directly to charity to avoid capital gains taxes.
Best to talk to your tax professional. (You can claim a charitable deduction for non-cash assets held for more than one year, up to 30% of the AGI. But the IRS allows a five tax year carry forward if your charitable deduction exceeds the AGI limits at during a given fiscal year.)
“Donating appreciated shares can be particularly beneficial since you can get a deduction for the fair market value of the donated shares without having to realize the gain on the shares as a taxable capital gain,” Luscombe said.
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Do you need to itemize your charitable donations?
This is the perfect time to think about the donations you would like to make. But again, you have to consider whether you are going to detail or not.
“If you donate non-cash items, you must be eligible to claim itemized deductions,” Greene-Lewis said.
Your itemized deductions, she noted, for expenses like mortgage interest, property taxes and charitable contributions must total more than your standard deduction, which is $12,550, single or married, to be filed separately; and $25,100 for marriages filed jointly in 2021.
For heads of households, the standard deduction is $18,800.
Many people don’t itemize deductions, especially after tax rule changes came into effect in 2018 that nearly doubled the standard deduction.
Higher inflation will also increase the standard deduction by several hundred dollars for 2022 tax returns, which will be filed in 2023.
The standard deduction for married couples filing jointly increases by $800 for 2022.
For single taxpayers and married individuals filing separately, the standard deduction increases by $400 for 2022.
For heads of households, the standard deduction increases by another $600 for 2022.
Have you donated to a qualified charity?
If you’re making a last-minute donation, you want to be sure the charity you’re considering is a qualifying charity so you can get tax relief.
“Taxpayers often try to claim deductions for contributions to organizations that are not qualified charities, such as political candidates or lobbying organizations,” Luscombe said.
Giving to someone’s personal GoFundMe effort usually isn’t going to cut it.
Still, donations made to GoFundMe-certified charitable fundraisers are tax-deductible and will automatically receive tax receipts from charity partner, PayPal Giving Fund, according to a GoFundMe spokesperson.
The donation platform offers specific GoFundMe Cause programs, including Justice & Equality, Pride, Mental Health, and Basic Necessities.
Keep your documents to back up your deduction and do your homework up front.
“Every year, there are court cases where the IRS has denied an individual’s charitable contributions due to lack of required documentation, improper appraisal, or lack of appraisal, if necessary,” a Allen said.
Be careful when giving only money to any request during this giving season.
“There are, unfortunately, a lot of scammers looking for ‘donations’ at this time of year,” Steber warned.
The IRS offers an online search tool to find an organization’s tax-exempt status on IRS.gov.
Paying attention now — and making last-minute cash donations by December 31 — can make a lot of sense, as many non-detailers are considering a tax benefit with a limited shelf life.