Photo: Dean Drobot (Shutterstock)
If you’re like 87% of tax filers that take the standard deduction, you probably don’t think much about deducting charity donations. However, a provision in last year’s COVID relief package lets you do just that, without having to itemize your taxes—up to $600 for joint filers. The only catch is that you’ll have to make your donations before the end of the 2021. Here’s a look at how it works.
How charitable deduction rules are different for 2021
Normally, you have to itemize your taxes to claim a tax deduction for charitable donations (which, in turn, reduces your taxable income). But most filers don’t itemize—instead they take the lump-sum standard deduction of $12,550, which usually totals more than the amount of possible deductions that could be achieved by itemizing. For this reason, most people don’t think about their charitable donations at tax time, which might explain why charity donations by households has dropped to its lowest rate in decades.
However, due to the CARES Act, in 2021 you’re allowed to itemize charitable deductions—up to $300 for individuals and $600 for married couples, as long as those donations are made before the end of 2021.
Therefore, if you’ve donated already, remember to claim the deduction at tax time (keep your receipts, too). And if you plan to make a donation, note that eligible donations must be in cash (that is, currency, credit or debit cards, checks, or electronic transfers), as you can’t claim items like clothing or food, nor can you claim time or services, like volunteer work. Also, before you donate, make sure you use this IRS look-up tool to see if the charity is eligible to receive tax-deductible charitable contributions.
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There’s one weird wrinkle to 2021 charitable donations, though
As Kate Dore at CNBC points out, the deduction isn’t an “above the line” deduction, nor is it really a “below-the-line” that requires itemized deductions. Instead, it’s an unusual “in-between” third category. This means that a charitable deduction will still reduce your tax burden, but it will not affect how the IRS calculates your annual gross income (AGI), which is what the federal government uses to determine your eligibility for many entitlement programs.
It’s a subtle distinction, but worth pointing out if you were banking on a charitable donation reducing your AGI to qualify for the child tax benefit or reduced student loan payments. Either way, it’s still a good idea to claim your charitable donations made in 2021.
