As the saying goes, “Tis the season of giving.” Take note that the expanded tax benefits through charitable gifting put in motion by the CARES Act are set to expire at the end of 2021. These benefits were designed to help individuals and businesses give to charity due to the hardships brought on by the COVID pandemic.

Questions you might ask:

“Don’t I have to itemize to deduct charitable contributions?”

 No. Thanks to the CARES Act beginning in 2020, those who are unable to itemize are allowed an above-the-line deduction up to $300 for cash donations.

The good news — the amount has doubled to $600 for married individuals filing joint returns in 2021. The deduction remains at $300 for singles.

For taxpayers in the 12% tax bracket, this $600 deduction equates to a $72 tax savings. Although that may not make a huge difference in your tax bill, those who give for the sheer joy of giving year after year without a tax benefit will reap something more.

“If I itemize, is the deductibility of my charitable cash contributions still limited to adjusted gross income (AGI)?”

Yes. However, prior to the CARES Act the same cash contributions would have been limited to 60% of AGI.

Now through 2021, cash contributions to qualifying charitable organizations are deductible up to 100% of AGI. What exactly does this mean? For those who are able and inclined to do so, cash donations could fully offset their AGI to zero!

“What kind of cash contributions are non-qualifying for the 100% rule?”

Those made to supporting organizations (i.e., a charity that carries out its exempt purposes by supporting other exempt organizations), private foundations, charitable remainder trusts, to establish and maintain donor advised funds, and cash contributions carried forward from prior years.

Please note that cash donations to these organizations are “non-qualifying” in the sense that you do not qualify to take advantage of the expanded benefits expiring at the end of 2021 (i.e., the above-the-line deduction for non-itemizers and the deductibility up to 100% of AGI for itemizers. However, charitable donations to these organizations will follow prior deductibility regulations and AGI limits.

“Are there any benefits for charitable giving at the corporate level?”

Yes, C Corporation’s charitable gift deductibility has increased to 25% of taxable income (up from 10%).

What does that look like on paper? Assuming a C Corporation has $100,000 taxable income (21% tax rate) before qualified contributions, the 10% maximum prior to the CARES Act would have yielded a $2,100 tax savings. However, at 25% the tax savings would be an additional $3,150 for a total savings of $5,250 ($25,000 times 21%).

Speak with your tax professional at Ketel Thorstenson to see how charitable gifting could benefit you.