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Last Minute 2021 Tax Savings: Charitable Contributions

According to the IRS, individuals can claim a limited charitable deduction on their federal income tax return for cash contributions made to certain qualifying charitable organizations in 2021.

By Michelle Petrowski, CFP

Thinking of making a cash charitable donation, but second guessing the choice because you can’t get a tax write-off? Well, 2021 could be different.

Michelle Petrowski Buonincontri

Michelle Petrowski

Typically, to claim a deduction for charitable contributions, folks must itemize their deductions. They won’t get that option if they elect to take the standard deduction on their federal tax return. Due to the tax changes that resulted from the Tax Cuts and Jobs Act of 2017 (TCJA 2017), almost 9 out of 10 taxpayers now take the standard deduction according to the IRS.

However, these folks could potentially qualify to claim a limited deduction for cash contributions in 2021. According to the IRS website, for 2021 these individuals can claim a limited charitable deduction on their federal income tax return for cash contributions made to certain qualifying charitable organizations.

The IRS allows individuals who elect the standard deduction, including married individuals filing separate returns, to claim a deduction of up to $300 for cash contributions made in 2021 to qualifying charities. For married individuals filing joint returns, the maximum deduction increased to $600. Those who have given in the past but may not be giving now due to the non-deductibility of qualified charitable deductions, can use this exception to benefit organizations which have lost donations due to the TCJA 2017 changes and the financial hardships caused by the pandemic.

Cash contributions to most charitable organizations qualify but the rules need to be understood. This rule will exclude many other giving opportunities including cash contributions to supporting organizations that conduct their exempt purposes by supporting other exempt organizations. There are also exclusions around cash contributions to most private foundations, cash contributions to charitable remainder trusts, and to charitable cash donations carried forward from prior years. Lastly, cash contributions made to establish or maintain a donor advised fund will not qualify either because as a donor, you have control and can advise the fund on how to distribute or invest amounts that you contributed and are held in the fund. (In general, the tax deductibility rules around donor advised funds can be much more generous, so speak with a professional about that opportunity.) For more information on the types of organizations that qualify visit the IRS Publication 526, Charitable Contributions.

Remember that cash contributions don't include the value of volunteer services, securities, household items or other property. And keep good records – make sure to get an acknowledgment letter from the charity before filing your return and retain cancelled checks or credit card receipts for contributions made of cash.

About the author: Michelle Petrowski, CFP®, CDFA®

Michelle Petrowski, CFP®, CDFA® (formerly Michelle Buonincontri), is a financial planner, wealth manager, divorce financial strategist, and personal finance coach. She is the founder of Being in Abundance and Being Mindful in Divorce, as well as an avid volunteer at Savvy Ladies in NY and Fresh Start Women's Foundation in Phoenix, and has worked closely with the Arizona U.S. Service Members. Michelle has been featured in CNBC, Forbes, MarketWatch, Investment News, Yahoo Finance, and other media outlets. You can email her at Michelle@BeinginAbundance.com or schedule a Q&A call with her here.

Information shared is for information purposes only and is not meant to be financial, tax, or legal advice, but options for your consideration and discernment. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant, or legal counsel prior to implementation.