Nearly 90% of taxpayers take the standard deduction, according to the Internal Revenue Service.
Ordinarily, only taxpayers who itemize their deductions can claim their charitable contributions. But, last December, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended temporary coronavirus tax changes through the end of 2021.
When you file your 2021 taxes, you can deduct up to $300 in charitable contributions – or $600 for couples – whether or not you take the standard deduction.
The benefit applies only to cash contributions to most charitable organizations, as long as you’ve kept your receipts. Cash contributions include those made by check, credit card or debit card, as well as any unreimbursed out-of-pocket expenses for volunteer services to a qualifying charitable organization.
You can’t deduct the value of volunteer services, securities or in-kind donations like household items or other property.
Charitable Contribution Limit Increases for Itemized Deductions
If you were planning to itemize deductions anyway, the limit for charitable contributions has increased to 100% of your taxable income. Previously, you could only deduct 20 to 60% of your taxable income, depending on your contribution and who you donated to. If you contributed more than that limit in a calendar year, you had to carry those deductions forward into the following tax years.
However, cash contributions made to donor-advised funds, private foundations, most charitable remainder trusts or organizations that exist solely to support another public charity, are not deductible.
If you’re not sure if an organization qualifies, check out the IRS’s tax exempt organization search tool.
Eligible individuals must choose to take the new limit by electing it on their 2021 Form 1040 or Form 1040-SR. Otherwise, their usual limit will apply.
Any other allowed charitable contribution deductions will reduce the maximum amount allowed under this election, the IRS said.
Businesses can receive increased benefits for their 2021 donations in some cases.
Tax law now permits C corporations to apply an increased limit of 25% to their taxable income for charitable contributions for 2021. Normally, 10% is the limit.
But, the increased limit is not automatic for businesses either. Eligible corporations must choose to apply the increased corporate limit to each contribution when they file their 2021 taxes.
The limit for C corporations that donate food has also increased to 25% from 15% for 2021 tax filings. Limits for other businesses like sole proprietorships, partnerships and S corporations are based on their total net income for the year.
Keep Good Records if You Plan to Deduct Charitable Contributions
Special record-keeping rules apply to any taxpayer claiming a charitable contribution deduction, according to the IRS.
Usually, you need a letter of acknowledgment from the nonprofit organization and a canceled check or credit card receipt for cash. For in-kind donations, you’ll need to file form 8283 and might also need to get a qualified appraisal.