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A stimulus package that Congress passed at the end of 2020 extends several provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act that became law in March 2020. The Act focuses on economic relief for individuals, businesses and healthcare institutions. It also includes provisions that can impact charitable contributions and may be of interest to you during these unprecedented times.

Extends Temporary Above-the-Line Charitable Tax Deduction

  • Taxpayers who would not itemize deductions are permitted to reduce their taxable income for cash charitable donations of $300 per individual or $600 for married couples who file jointly. This adjustment to income is available only to individuals who claim the standard deduction ($12,550 for singles, $18,800 for head of household, $25,100 for those married filing jointly for tax year 2021).  Many more people are claiming the standard deduction, rather than itemizing, after the increase in the standard deduction that took effect in 2018.  This potential income reduction will offer an incentive for charitable giving among those who will not itemize their deductions in 2021.

Extends Temporary Suspension of the 60 Percent Adjusted Gross Income Limitation

  • Taxpayers who itemize in 2021 and who make cash gifts to public charities can deduct those gifts up to 100% of their adjusted gross income. That means a donor could reduce his or her income tax liability to zero through charitable contributions in 2021. If charitable contributions in 2021 exceed 100% of the donor’s income, the excess deduction can be carried forward for five (5) years, but the enhanced 100% deduction limitation expires after 2021. Gifts made to Donor Advised Funds (DAFs) do not qualify for the increased deduction limitation, even though they are gifts to public charities. While the Act does not specifically exclude cash gifts to fund charitable remainder trusts and charitable gift annuities, these types of gifts may not be entitled to this 100% of income treatment.

Extends Increased Deduction for Corporations

  • In 2021, corporations may continue to deduct charitable gifts up to 25% of the corporation’s taxable income (increased from 10%).

The material presented is not offered or intended as legal or tax advice. We recommend that you discuss your personal situation with your advisors; if we can be of help, please do not hesitate to contact us at 216-778-5665.