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Above-the-Line Tax Deduction for Charitable Cash Donations Extended through 2021

A special temporary tax law change allows taxpayers to donate cash up to $300 to charity and receive an above-the-line tax deduction. Donations made in 2020 may be deducted for up to $300 per return. Donations in 2021 have increased to allow up to $300 per taxpayer ($600 for joint return). Additionally, the limitation on charitable cash donations for itemized deductions has been suspended.

This provision was enacted as part of the CARES act and signed into law December 27, 2020. The above-the-line deduction applies to individuals who take the standard deduction (nearly 9 out of 10 taxpayers) and was implemented to help charitable organizations continue to serve their communities.

 

Example of how above-the-line-deduction can reduce tax liability:

A married couple filing jointly has a taxable income of $85,000 in 2021 and is in the 22% tax bracket. They do not itemize deductions but do contribute $600 to a qualified charity. This couple could reduce their tax liability by up to $132.00 on their 2021 income tax return.

What if I itemize?

For individuals who typically itemize their deductions, prior limitations attributed to charitable cash contributions are suspended through 2021. Individuals may itemize charitable cash contributions to the extent of 100% of adjusted gross income. Prior to this, the IRS limited itemizable amounts to a certain percentage of adjusted gross income, typically 60%. These individuals will not receive an above-the-line deduction. Instead, they receive a higher ceiling to deduct from adjusted gross income.

How to donate

Individuals can make a cash donation to those qualifying charity organizations listed on the IRS Tax Exempt Organization Search. Payments can be made by cash, check, debit or credit card. The IRS reminds individuals to obtain a receipt or an acknowledgement letter from the organization for record keeping.

How to claim deduction

When you file your 2021 federal tax return, enter in the amount of cash contributed to qualifying charities during the calendar year. The first $300 (or $600) will carry over as a deduction for adjusted gross income. If you itemize, there will be no above-the-line deduction and 100% of the cash contribution will be added to the deductions from adjusted gross income (itemized deductions).

 

For more information about regarding this tax break please visit “New Bigger Charitable Tax Break for 2021 in Year-End Spending Package”

For more information regarding charitable cash contribution as itemized deduction please visit Charitable Contribution Deductions at https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions