Tim’s Tax News on the Tenth – November 2021

November this year is not just a time to turn back clocks, but it is a time to give thanks. With Thanksgiving just about two weeks away, the IRS this month reminded taxpayers that a special tax provision would allow more Americans to easily deduct up to $300 in donations to qualifying charities on their 2021 federal income tax return.

Typically, people who choose to take the standard deduction cannot claim a deduction for their charitable contributions on their federal tax return. However, a temporary law change now permits a taxpayer who uses the standard deduction to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to qualifying charitable organizations. The IRS estimates that nearly nine in ten taxpayers now take the standard deduction and could potentially qualify for this charitable deduction.

Under this provision, individual tax filers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is doubled to $600 for married individuals filing joint returns.

Included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, a more limited version of this temporary tax benefit originally only applied to tax-year 2020. The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted last December, generally extended it through the end of 2021.

Cash contributions include those made by check, credit card or debit card as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with their volunteer services to a qualifying charitable organization. Cash contributions do not include the value of volunteer services, securities, household items or other property.

The IRS reminds taxpayers to make sure that they are donating to a recognized charity. To receive a deduction, taxpayers must donate to a qualified charity. To check the status of a charity, they can use the IRS website to find an information sheet on tax-exempt organizations by state.

Cash contributions to most charitable organizations qualify. But, contributions made either to supporting organizations or to establish or maintain a donor advised fund do not. Contributions carried forward from prior years do not qualify, nor do contributions to most private foundations and most cash contributions to charitable remainder trusts.

In general, a donor-advised fund is a fund or account maintained by a charity in which a donor can, because of being a donor, advise the fund on how to distribute or invest amounts contributed by the donor and held in the fund. A supporting organization is a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities.

Special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Typically, this includes obtaining an acknowledgment letter from the charity before filing a return and retaining a canceled check or credit card receipt for contributions of cash.

If you would like more details, please do not hesitate to call our office. Our office has been successful in helping taxpayers with IRS and IDOR collection problems for over 28 years. If you have a tax or debt problem, please contact me at 847-705-9698 or thughes@lavellelaw.com and find out how we can help you.

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