Individuals and families who donate part of their income to a registered charitable organization with an IRS designation of 501(c)3 can save on their taxes by taking the donation as a deduction. In 2021, a new deduction is available to taxpayers as part of the CARES Act.
The CARES Act – or Coronavirus Aid, Relief, and Economic Security Act – was passed by Congress in March 2020 to help support nonprofits through the crisis. In addition to providing over $2 trillion in aid directly to affected organizations, the CARES Act created a new deduction for taxpayers.
Individual taxpayers who take advantage of the new deduction in 2021 can write off up to $300 (or up to $600 for a married couple) in charitable contributions made throughout 2020. Taxpayers and businesses that itemize deductions on their tax returns can deduct up to 100% of contributions from their AGI (adjusted gross income.)
To qualify, donations must be to a qualified charitable organization that was granted tax-exempt status by the IRS and is eligible to receive tax-deductible charitable contributions. These can include:
• Churches, mosques, synagogues, temples, and other religious organizations
• Service-oriented public charities like Goodwill, United Way, Salvation Army, Red Cross, CARE, Boy/Girl Scouts, and Boys & Girls Clubs of America
• Nonprofit schools, hospitals, and volunteer fire departments
• Veterans’ and certain cultural groups
• Public parks and recreation facilities
Taxpayers commonly make donations during the holiday season to reduce their taxable incomes, maximize their deductions, and support causes they care about. Charitable donations at year-end have become a part of American culture. End-of-year giving can help both individuals and communities.