This Giving Season, How Much Can You Donate – and Deduct in Taxes?

In this segment of “Financial Planning Q&A” on Motley Fool Live, recorded on Dec. 1, Fool contributor Dan Caplinger outlines the 2021 tax rules for making charitable gifts.

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Dan Caplinger: It’s December. That means it’s time to think about gifts, and as greedy as I am, usually the gifts I’m talking about on the show are the gifts people are making to others, especially through charitable organizations.

I just wanted to update everybody on what the rules are for that because 2021 brings one big change. It’s not that big of a deal, but it’s still something to keep in mind because you may be thinking about gifts in a different way based on this.

As everybody knows when the Tax Reform Act back in late 2017, early 2018 became law, it dramatically increased the standard deduction that people are allowed to take on their tax returns. One unfortunate side benefit of that or the side effect of that was that it reduced the tax incentives for a lot of people to make charitable gifts.

Recall that most charitable contributions are typically required to be itemized, and so if you take a standard deduction, then you’re not going to get any additional benefit from making those charitable contributions. Congress was aware of this, and so in the past couple of years, they’ve added at least some minor provisions to help charities out, to give a little bit of extra incentive to folks.

The 2021 version of this rule is actually even better than the 2020 version was. Last year, you could make charitable gifts, cash gifts, which means cash, check, by credit card, just not donations of property. Cash gifts of up to $300, and even if you did not itemize your deductions, you could write off that $300 as an above-the-line deduction against your adjusted gross income.

That meant that anybody pretty much regardless of tax bracket, regardless of tax situation, if they were taking the standard deduction, they could still get an extra $300 boost by making a cash gift to a charity. In 2021, that opportunity is here, but it is enhanced.

You can now give up to $600 in cash donations for 2021. Those will need to be made by the end of the year, but if you do so, then you’ll be able to take that deduction. Again, it’s called above the line because it’s not something you have to itemize for, and so if you’re taking the standard deduction, that’s something that is going to be available.

No word yet on this provision set to expire and so no word on that getting extended into 2022. It’s a popular deal though. Charities sure appreciate it. It’s something to keep in mind.

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