You still have time to contribute to a charitable cause and get a break on your 2021 tax return, even if you don’t itemize deductions.
A special tax break available to most taxpayers, approved by Congress for the 2020 tax year as part of the pandemic relief program, was extended through 2021.
That means individual taxpayers can take a deduction of up to $300 for cash donations made this year when they file their federal tax returns in 2022. Married couples who file joint tax returns can take a deduction of up to $600, instead of being restricted to $300 as they were last year, according to the Internal Revenue Service.
Deductions lower your taxable income, helping to reduce the amount of federal income tax you pay.
Normally, taxpayers can’t deduct charitable contributions unless they itemize — meaning they report each separate deduction on their return and deduct the total. It generally doesn’t make sense to itemize, unless your deductions exceed the “standard” one set by the Internal Revenue Service. That’s the amount you can deduct from your income, with no documentation required.
Most taxpayers now take the standard deduction because it was roughly doubled as a result of the tax code overhaul in 2017. (The standard deduction for the 2021 tax year is $12,550 for a single taxpayer and $25,100 for a married couple filing a joint return.) About 90% of filers now take the standard deduction and are probably eligible for the special deduction for charitable giving, according to the IRS.
To qualify for the extra deduction, the donations must be made to an eligible charity and must be paid in cash, check or credit card. Donating goods or volunteering your time doesn’t count.
The specific dollar amount that you will save with the deduction depends on your tax rate, said Susan Allen, a senior manager for tax practice and ethics with the American Institute of Certified Public Accountants.
Because the amount you can deduct is low, the tax savings may be relatively modest. For instance, a single person in the 22% tax bracket who makes a $300 donation could save about $66, Allen said.
If you are married, file a joint tax return and are in the 22% bracket, you could save about $132.
Charitable giving in the United States was up overall last year, by about 5% over 2019, according to an analysis from the data arm of GivingTuesday, a nonprofit organization that promotes philanthropy. The group’s namesake event is the Tuesday after Thanksgiving, which began in 2012 as a day of charity and public service.
An early analysis of this year’s GivingTuesday, on Nov. 30, estimated that donations in the United States increased by 9% over last year.
“Americans continue to be highly generous,” said Woodrow Rosenbaum, the chief data officer at GivingTuesday.
It’s unclear how large an impact the special charitable deduction has had, he said, although the group’s 2020 analysis noted a “small spike” in donations of $300 on Dec. 31. “It’s not that the effect is zero,” Rosenbaum said of the $300 deduction. Rather, “it was small and difficult to measure.”
In contrast, the group’s analysis showed a clear increase in donations in amounts of $1,200 and $2,400 — amounts that correlate with the size of the federal government’s stimulus payments — in 2020, suggesting the payments played a larger role in charitable giving.
Still, it’s possible that people were unaware of the special deduction when it was first made available last year, but may be prepared to make a gift and take advantage of it this season, Rosenbaum said. The group’s full analysis of overall giving in 2021 will be available next year.
Here are some questions and answers about charitable deductions:
Q: Will the special tax deduction be available after 2021?
A: The deduction is temporary and is scheduled to end at the end of 2021 — unless Congress extends it again.
Q: When is the deadline for making a contribution?
A: The deadline for making a donation that can be deducted on your 2021 tax return is Dec. 31.
Keep a record of your gift, like a canceled check, and a letter from the charity documenting the donation. A written acknowledgment is required for donations of $250 or more, Allen said.
Q: How can I find eligible charities for my donation?
A: Donations must be made to a qualified nonprofit organization to be eligible for the deduction. The IRS has a search tool of eligible groups, including those that are “religious, charitable, educational, scientific, or literary in purpose, or that work to prevent cruelty to children or animals.”