Charitable Deduction Changes Incentivize Donations
On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law. While the initial buzz focused on amendments to the Paycheck Protection Program and revised employee benefits, the CAA also extended various charitable tax deductions through the end of 2021. These deductions support and incent charitable donations by both individuals and corporations.
For individuals, the changes, while temporary, assist those who use the standard deduction as well as those who itemize their taxes. For those taking the standard deduction, charitable deductions qualify as an above-the-line deduction, reducing one’s taxable income. Individuals qualify for a deduction of up to $300 in charitable contributions and joint filers up to $600. For those itemizing their taxes, there is typically a charitable deduction cap of 60% of one’s adjusted gross income. The CCA continues the suspension of this limit through the end of 2021 and allows individuals to take charitable deductions of up to 100% of their adjusted gross income. Cash donations to qualifying charities are eligible, while gifts to donor-advised funds and private foundations are not. The eligibility of a charity can be confirmed here.
Corporations also benefit from this extension. The CAA increases the limit of charitable deductions for corporations from 10% of adjusted gross income to 25% of adjusted gross income. With that said, the IRS has increased the penalty for overstating charitable tax deductions, resulting in penalties of 50% of the total deduction amount, an increase from 20%.
Now is a good time to consider charitable contributions and to take advantage of these temporary changes. If you have any questions regarding the availability of these deductions, or other aspects of the CAA, please contact a Baird Holm LLP attorney.
Katlyn Martin, Summer Associate