Tax incentives brought about by the CARES Act for 2020 have been extended to the 2021 tax year.
On December 27, the U.S. Government enacted a second stimulus package in response to the COVID-19 pandemic. The new stimulus package extends many of the charitable giving provisions outlined in the original Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law in late March of 2020.
The CARES Act established a “universal charitable deduction” for 2020. This was a new “above-the-line” deduction of up to $300 for individuals — who do not itemize and will take the standard deduction on their 2020 tax returns — making cash donations to charity. The new package extended the universal charitable deduction through 2021.
The new bill also expanded that universal charitable deduction to include those filing jointly. For the 2021 tax year, the same $300 “above-the-line” deduction still applies for individuals; however, those filing jointly will be able to deduct up to $600.
Also included in 2021 is increased limits on deductible charitable contributions for individuals who itemize and for corporations. Donors who itemize their deductions can now give more cash to charity before reaching their adjusted gross income (AGI) limitation. Formerly set at 60%, the limitation for cash contributions to certain public charities has now been raised to 100% of an individual’s AGI for both 2020 and 2021. Any giving beyond this 100% limitation may be carried over and used in the next five years.
It’s important to work closely with your tax and financial advisor to coordinate your tax and charitable giving strategies. Your advisors can provide a detailed tax projection so that you will be fully aware of how a proposed strategy would impact your overall tax and investment planning.