The Internal Revenue Service (IRS) recently issued a notice announcing the expanded federal tax benefits of individuals and businesses giving to charity before the end of 2021. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 created opportunities to assist in charitable donations for individuals and businesses, and it extends some changes put into action by the Coronavirus Aid, Relief, and Economic Security (CARES) Act through the end of this year. Doeren Mayhew’s tax advisors highlight these changes so you can plan your charitable donations accordingly for the remainder of 2021.

$300 Deduction for Non-Itemizing Individuals

Usually, individuals who take the standard deduction cannot claim charitable contribution deductions. Fortunately, the new law allows for up to a $300 deduction for an individual’s cash contributions made to eligible charities in 2021, or up to a $600 deduction for married individuals filing jointly.

100% Limit on Itemizers’ Eligible Cash Contributions

Itemizing individuals typically claim deductions for charitable contributions made to eligible charitable organizations. The limits for these deductions range from 20% to 60% of adjusted gross income (AGI), depending on the type of contribution and the charitable organization. The law now authorizes individuals a higher limit of up to 100% of their AGI for eligible contributions in 2021.

Corporate Limit Increases to 25% of Taxable Income

The maximum allowable deduction is typically capped at 10% of a corporation’s taxable income. The legislation now permits C-corporations to benefit from a 25% maximum deduction for charitable contributions of cash they make to qualifying charities before the end of the year. However, the Increased Corporate Limit (ICL) will not automatically apply, and C-corporations must elect the ICL on a contribution-by-contribution basis.

Donated Food Deductions

Businesses that donated food inventory in 2021 may also be eligible for increased deduction limits – an increased limit of 25% based on C-corporations’ taxable income for contributions made this year. Qualifying businesses include those that made deductions to organizations caring for the sick, needy and infants. Sole proprietorships, partnerships and S-corporations have their own limits based upon their aggregate new income for 2021 from all trades or businesses from which the contributions were made.

Charitable Giving Rule Reminders

The IRS ends its notice reminding taxpayers and businesses that special recordkeeping rules apply when claiming charitable contribution deductions. This typically includes some sort of confirmation letter from the charity prior to filing a return and saving canceled checks or credit card receipts for cash contributions. Additional recordkeeping rules apply for property donations, including filing Form 8283 (Noncash Charitable Donations) and even getting an appraisal of the property on certain occasions.

If you would like to take advantage of these attractive charitable giving tax benefits before the end of the year, Doeren Mayhew’s tax advisors stand ready to help. Contact us today to learn how you can leverage the new legislation to your advantage for both your personal and business contributions.