An Update To Charitable Donation Tax Law

For many years, charitable donations as a tax right off have only been available to those who itemize their deductions. Those who take the standard deduction have not been able to take advantage of charitable donations for tax purposes. For tax year 2020, the ability to deduct charitable donations was expanded to include those taking the standard deduction for donations up to $300. This was set on a per “tax unit” basis meaning both single and married couples were limited to this $300 ceiling per tax return. For tax year 2021, the deductibility of charitable donations has once again been updated. This time, it has been expanded to include a $300 limit per taxpayer. In other words, married couples may now take up to $600 in charitable donations. There are a couple items to note:

1. The donations must be made to a recognized charity. These are 501(c)(3) organizations.
2. These are cash donations. This can be cash, check, credit card, or wire transfer. Donations of goods or services are not eligible.

Those itemizing their donations are not limited to this $300 or $600 ceiling.

For those who are in retirement and taking distributions from their savings, it may be possible to reduce taxable income through charitable giving strategies. Rather than a charitable donation being shown as a deduction on your tax return, the distribution from your retirement savings can avoid being shown as taxable income altogether. This is much more favorable. If you are interested in learning more, please reach out to our office.