Good News for married individuals filing jointly or separately for the 2021 tax year! The Taxpayer Certainty and Disaster Tax Relief Act of 2020 now allows an increased deduction for charitable contributions up to $300 for each spouse when taking the standard deduction. This doesn’t affect single taxpayers or head of household filers as they were already allowed a $300 charitable contribution deduction when using the standard deduction. This additional deduction for married taxpayers helps charities that are struggling from lack of funding due to the Coronavirus mandatory full or partial shutdowns in 2020 and the beginning of 2021. Charities were already suffering from reduced contributions due to the 2018 Tax Cuts and Jobs Act which nearly doubled the standard deduction. As a result, many taxpayers stopped making charitable contributions because there was no longer a tax benefit for them to do so. Although the IRS tried to remedy this issue by allowing a $300 contribution deduction when taking the standard deduction, married taxpayers balked at not being able to make that contribution for each spouse. This is the remedy for that problem.
Taxpayers who itemize instead of taking the standard deduction can also take advantage of this new act. Instead of being limited to a deduction of 60% of adjusted gross income for charitable contributions, taxpayers who itemize can now get a deduction of up to 100% of adjusted gross income when making contributions to qualifying charitable entities.
C Corporations can also take advantage of an increased deduction for charitable contributions of up to 25% of taxable income, up from 10% for years prior to 2021. Other types of businesses, including sole proprietorships, partnerships, and S Corporations can also get a deduction for charitable donations up to their aggregate net income for the year. If a C Corporation donates food for the care of the ill, needy, or infants that are otherwise eligible for the existing enhanced deduction, contributions of up to 25% of taxable income are allowed or other types of businesses up to their aggregate net income for the year.
These expanded deductions for charitable contributions help all types of taxpayers in one way or another and is a life saver for charities that have been short on funds for the last several years.