By Melissa R. White, Tax Senior Manager, Eide Bailly LLP, Aberdeen:
“When it comes to tax law, about the only real certainty is nothing stays the same.”
- CPA and Accredited Estate Planner Melissa White from Eide Bailly LLP shares some charitable giving reminders for 2021.
With the various federal tax proposals being discussed in Washington, DC, many of you may have already begun year-end tax planning or are considering a review of your retirement and estate plans. While there is significant uncertainty as to the future of those tax proposals as of the date this article is written, here are a few items we do know.
Charitable Deduction Provisions Set to Expire
When the CARES Act was passed in 2020, it included two significant charitable provisions for individuals that are set to expire at the end of 2021.
Deduction for Those Who Do Not Itemize - Before 2020, individuals who did not have sufficient expenses to utilize the itemized deduction received no tax benefit for their charitable gifts. With the passage of the CARES Act, individuals were permitted to take a limited federal income tax deduction for cash contributions made to certain qualifying charitable organizations. While the limit was $300 for all taxpayers in 2020, the maximum deduction increased to $600 for married individuals filing joint returns for 2021. The $300 deduction remains for all other filers.
Removal of the Adjusted Gross Income Cap for Cash Gifts - Subject to certain limits, individuals who itemize may generally claim a deduction for charitable contributions made to qualifying charitable organizations. The deduction is typically limited to 20% to 60% of adjusted gross income (AGI) and varies by the type of contribution and type of charitable organization. The CARES Act permitted electing individuals to apply an increased limit, up to 100% of their AGI, for qualified cash contributions made during calendar-year 2021.
For the two CARES Act provisions above, cash contributions made either to supporting organizations or to establish or maintain a donor advised fund do not qualify. Cash contributions carried forward from prior years do not qualify, nor do cash contributions to most private foundations and most cash contributions to charitable remainder trusts.
The Powerful Qualified Charitable Distribution (QCD)
When the age for required minimum distributions from retirement accounts increased to 72, it created some confusion of when QCDs are permitted. The good news is QCDs can still be made once the account owner reaches age 70 ½. QCDs are a powerful source for charitable gifts. You can satisfy all or part of your required minimum distribution amount with a QCD, the QCD amount is not included in your taxable income, and there are other potential benefits to taxes and Medicare premiums.
IRS Update
Not only is the IRS allowing the $300 deduction for cash donations for people who take the standard deduction, they’ve added a $600 deduction for married joint filing. So, give generously! Donations can be made by visiting SDPB.org/donate or calling
605-677-5861.
Charitable and planned giving comes with unique compliance requirements and complexities beyond the scope of this article so it is important to seek the counsel of a professional who is knowledgeable about your personal financial situation and the latest tax law.
Visit SDPB.org/friends for more info or call 605-677-5861.