In response to the COVID-19 crisis, the CARES Act included provisions to stimulate philanthropic giving in 2021. Please talk with your tax advisor and make sure you are taking advantage of these one-time opportunities to reduce your tax burden for 2021.
If you itemize deductions…
The adjusted gross income (AGI) limit for cash contributions was increased for individual donors. For cash contributions made in 2021, you can now elect to deduct up to 100 percent of your AGI (increased from 60 percent).
If you don’t itemize…
The CARES Act allows for an additional, “above-the-line” deduction for charitable gifts made in cash of up to $300 for single filers and $600 for married couples filing jointly. If you are not itemizing on your 2021 taxes, you can claim this new deduction.
If you donate through your IRA Qualified Charitable Distribution (QCD)…
The CARES Act did not change the rules around the QCD, which allows individuals over 70½ years old to donate up to $100,000 in IRA assets directly to charity annually, without taking the distribution into taxable income.
However, remember that under the CARES Act an individual can elect to deduct 100 percent of their AGI for cash charitable contributions. This effectively affords individuals over 59½ years old the benefits similar to a QCD; they can take a cash distribution from their IRA, contribute the cash to charity, and may completely offset tax attributable to the distribution by taking a charitable deduction in an amount up to 100 percent of their AGI for the tax year.
If you’re planning a large donation in 2021, this may be a smart strategy as long as you are between the ages of 59½ and 70½ and are not dependent on existing retirement funds.
If you donate through a Donor Advised Fund…
The incentives in the CARES Act apply only to cash contributions to public charities and do not apply to contributions to supporting organizations or public charities that sponsor donor-advised funds. However, there have been no changes to existing deductions for contributions made into a donor-advised fund. This means you are still able to deduct up to 60 percent AGI in cash and up to 30 percent AGI in appreciated assets contributed to a donor-advised fund.
Existing carry-over rules still apply, so if your donations in 2021 exceed your AGI deduction limits, you may carry forward excess deductions for up to five subsequent tax years.
If you donate stock…
Although there were no changes to rules regarding stock donations included in the CARES Act, donating stock can still offer significant tax savings. Donors can donate appreciated stock shares directly to SJW and avoid all capital gains. This means tax savings to you and increased donations to SJW.
For corporate donors
The AGI limit for cash contributions was also increased for corporate donors. Corporations can now deduct up to 25 percent of taxable income (increased from 10 percent).
As always, please consult with your tax and legal advisors when considering your charitable giving.