Benefit from your generosity
Q: Because of the pandemic last year, there was a new charitable deduction for taxpayers who don’t file an itemized return. Is that still available?
A: Yes. If you make a charitable contribution before Dec. 31, you may be eligible for this modest deduction even if you don’t itemize.
For the 2021 tax year, people who take the standard deduction can deduct up to $300 of cash donations to charity. The $300 amount is per person, so if you’re married, you can deduct a total of $600 on your 2021 tax return.
The deduction is limited to cash contributions — donations of clothing and household goods to your local Goodwill aren’t eligible. Contributions to donor-advised funds aren’t eligible, either. Keep a record of your contribution with your tax documents. For donations less than $250, you need a bank record, such as a canceled check or credit card statement. For donations of $250 or more, you should obtain a written acknowledgment from the charity that shows the date of the contribution and the amount, and states whether you received any goods or services in exchange for your donation.
If you itemize, you can deduct charitable contributions made before year-end on Schedule A of your 2021 tax return. As was the case in 2020, itemizers can deduct donations of up to 100% of their adjusted gross income. Ordinarily, the cutoff is 60%, but that limit was removed for the 2020 and 2021 tax years (although there’s still a 100%-of-AGI limit on all charitable contributions). Donations to donor-advised funds aren’t eligible for the higher limits.
Q: What are the rules for making tax-free charitable distributions
directly from an IRA?
A: If you’re 70 ½ or older, you can direct up to $100,000 each year from your IRA to an eligible charity through a qualified charitable distribution (QCD). The amount you transfer is excluded from your taxable income, and it counts toward all or part of your Required Minimum Distribution (RMD) for the year.
For a QCD to be eligible as an RMD, you must make the QCD by your RMD deadline, which is usually Dec. 31.
Note that changes in the law now allow those 70 ½ or older who have earned income to contribute to a traditional IRA. If you make tax-deductible contributions to an IRA at age 70 ½ or later, the tax-free amount of a subsequent QCD is reduced by the amount of the contributions.