It will continue to be more rewarding to give generously in 2021 than it has been in the recent past.
The omnibus spending and coronavirus relief package that President Donald J. Trump signed into law last week extends two provisions that put more money back into the pockets of people who give to charities.
The two tax breaks first were available for the 2020 tax year, and now will be offered again for 2021. One also will be more valuable for certain taxpayers.
More people can take a charitable deduction in 2021
Taxpayers who do not itemize their tax deductions — meaning they instead take the standard deduction, a flat amount — can take a deduction of up to $300 for monetary donations made to qualifying nonprofit organizations in 2021. Married couples who file a joint tax return can take a $600 deduction.
Originally, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March, this change was effective only for 2020 and was worth no more than $300. In essence, the new law extends the tax break into 2021 and makes it more valuable for married couples filing jointly.
The cap on deductible donations is suspended for 2021
Taxpayers who do itemize their deductions are not subject to any caps on the amount of donations they can deduct in 2021. This also is an extension of a provision that originally was part of the CARES Act and effective only for 2020.
Usually, the limit is 60% of adjusted gross income, or AGI (found on your tax return). In other words, the amount of charitable donations you could deduct as recently as 2019 generally could not exceed 60% of your AGI. For 2021, as in 2020, that limit has been temporarily suspended.
Just make sure you don’t try to hoodwink Uncle Sam and take a bigger break than you deserve. Under the new law, the penalty for overstating a deductible donation has been increased, from 20% to 50% of the underpayment.
Also note that the IRS requires you to keep a record of any charitable donations of $250 or more that you write off on your taxes.
Other changes to your tax return
These changes to the tax code are a response to the coronavirus pandemic. But they are not the only virus-related revisions that may impact the tax returns you file in the spring of both 2021 and 2022. For more, check out “5 Ways the Coronavirus Will Change Your Next Tax Return.”
If you are struggling with old tax obligations and would like to clear them now, stop by Money Talks News’ Solutions Center and find an expert who can help with your tax debt.
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Source: moneytalksnews.com