The 2020 CARES Act and the Taxpayer Certainty and Disaster Tax Relief Act provided charitable giving incentives for both itemizing and non-itemizing taxpayers for contributions made to qualifying public charities for tax year 2021. As you plan your 2021 charitable giving, consider how these provisions may impact or inspire your philanthropy, and review strategies you may consider.
1. Donors who do not itemize their charitable deductions can claim a tax benefit up to $300/$600 for cash gifts made to public charities.
If you typically take the standard deduction on your tax returns, individuals can deduct up to $300 over the amount of the standard deduction (and married filing jointly up to $600) for cash gifts made to public charities.
2. Donors who itemize charitable deductions may deduct cash gifts to public charities to offset as much as 100% of your income in 2021.
Typically, the income tax charitable deduction for cash gifts is limited to 60% of your adjusted gross income (AGI). In 2021, especially generous donors may reduce their 2020 federal income tax to zero through cash gifts to public charities (subject to the exceptions below). If your assets are substantial enough that you can give more than your income this year, you won’t lose the deduction for the excess amount; you can carry forward any unused cash contribution deductions for up to five years.
These two incentives apply to cash gifts made to public charities and do not apply to:
While gifts to donor advised funds are specifically excluded from these enhanced charitable giving provisions, you are still able to make a cash gift to start a donor advised fund or add to your DAF and deduct up to 60% of AGI.
If you’d like to take advantage of the 100% AGI limit, consider making a cash gift to your local NCCF affiliate’s endowment, your favorite nonprofit organization or their endowment (see our full list of funds here), establish a designated fund to provide annual support to your favorite nonprofit organization, or start a scholarship endowment to support education in North Carolina.
In 2021, consider a blended approach of giving both appreciated assets and cash, leveraging the CARES Act’s increased income tax deduction threshold while growing your DAF and supporting your favorite nonprofit:
The result? The full amount can be deducted for 2021, you will avoid capital gains taxes by donating appreciated assets and you will grow your DAF to allow more impactful grantmaking to the nonprofit organizations you love.
NCCF does not provide tax or legal advice. The information contained herein is for educational purposes and is not intended to be a substitute for individualized tax, legal, or investment advice.