Tax Benefits to Consider in 2021
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed. Provisions were included in the Act to encourage charitable giving by individuals in 2020, including a deduction for non-itemizers and a higher deduction limit for itemizers. The Consolidated Appropriations Act of 2021 extends these provisions through December 31, 2021.
The CARES Act waived the required minimum distributions for IRAs in 2020, but the required distributions have returned in 2021.
In light of these stimulus bills, here are three things you may want to consider when planning your year-end charitable gifts.
Non-itemizers can receive a deduction for donations
Ordinarily, individuals who elect to take the standard deduction cannot claim a deduction for their charitable contributions. Temporary legislation now permits these individuals to claim a limited deduction for cash contributions to charities. Single filers can claim up to $300, and married couples filing jointly can claim up to $600 for donations made in 2021.
Itemizers have a 100% limit on cash donations
Subject to certain limits, individuals who itemize may claim a deduction for charitable contributions. These limits typically range from 20-60% of adjusted gross income (AGI), depending on the type of contribution and charity. Temporary legislation now permits individuals to claim up to 100% of their AGI for cash contributions to charities in 2021.
IRA required minimum distributions resume in 2021
The CARES Act waived required minimum distributions for IRAs in 2020, but the required distributions resume in 2021. If you are 70.5 years of age or older, you may transfer up to $100K per year from your IRA to one or more qualifying charities. The amount you transfer will count towards your minimum distribution requirement but will not be added to your taxable income. If you have a regular IRA and will not need all of it for living expenses, making your gifts from it may be an appealing way to satisfy the distribution requirement without adding to your taxable income.
This is only a high-level overview of the temporary provisions enacted by recent legislation. We encourage you to consult your own legal or financial advisors regarding these provisions to see what makes the most sense for your particular situation.