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IRS Announced a New $600 Charitable Contribution Deduction for Couples Filing Jointly for 2021

IRS Announced a New $600 Charitable Contribution Deduction for Couples Filing Jointly for 2021
Ines Zemelman, EA
27 December 2021

The Internal Revenue Service (IRS) is teaming up with several prominent nonprofit organizations to draw attention to a special tax exemption that allows individuals to deduct donations to qualifying charities on their 2021 IRS tax return.

The IRS, the Independent Sector, and the National Council of Nonprofits collaborated to highlight this epidemic-related IRS tax relief, allowing couples filing tax returns jointly to deduct up to $600 in cash donations and individuals making individual contributions up to $300.

Under the temporary legislation, taxpayers will not have to itemize deductions on their tax returns to benefit from this, opening tax-advantaged donation options available to only about 10% of tax filers under normal circumstances. Typically, individuals who opt for the standard deduction cannot deduct their charitable contributions. However, under this particular exemption, they may claim an increase in their refund or a decrease in their taxes on their 2021 income tax return for cash donations made to qualifying charitable organizations by the end of 2021.

"The pandemic has created unique challenges for tax-exempt organizations, and we want to make sure people don't overlook this special tax deduction that's available this year," said Sunita Lough, IRS Commissioner of the Tax Exempt and Government Entities division. "Donations to qualifying charities can reduce people's tax bill when they file in 2022."

Leaders from the National Council of Nonprofits and the Independent Sector, two prominent organizations representing charitable groups across the United States, emphasized how the unique tax treatment may help organizations adversely impacted by the epidemic. During this trying time, some organizations have seen their charitable donations drop, while others have seen an increase in the demand for their services.

"At a time when nonprofits continue to see immense demand for services, are facing significant challenges hiring and retaining staff to deliver those services--every donation counts," said David L. Thompson, Vice President of Public Policy at National Council of Nonprofits. "We're thankful that the universal (or non-itemizer) deduction is available through the end of the year to encourage every taxpayer to give a little bit more to the missions they care about."

"Over the past two years, charities have helped America confront generational health, economic and social crises. They have answered the call to serve their communities despite facing lost revenue, disrupted operations, and dramatically increased need," said Daniel J. Cardinali, president, and CEO of Independent Sector.

"Congress has sent a powerful message that everyone – not just those who itemize on their taxes – has a role to play in helping meet this moment, and we know people in America will respond in kind. We hope charitable contributions and deductions will increase in the coming years."

A more restricted form of this short-term charity tax deduction, which was previously only available to taxpayers in 2020, is included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in early March 2020.

Cash contributions include checks, credit cards, and debit cards, and payments paid by individuals for unreimbursed out-of-pocket expenses incurred while volunteering for a qualifying charity organization. Volunteer services, securities, home belongings, and other property are not included in cash contributions.

The IRS emphasizes that donors must contribute to a qualified charity to claim a deduction. The IRS Tax Exempt Organization Search tool may be used to determine whether or not a charity is still tax-exempt.

Donations of cash to most charity organizations are tax-deductible. Contributions to supporting organizations or to form or manage a donor-advised fund, on the other hand, do not qualify. Contributions to most private foundations and most cash contributions to charitable residual trusts do not qualify as contributions carried forward from previous years.

A donor-advised fund, in general, is a fund or account managed by a charity in which a donor can counsel the fund on how to disperse or invest monies donated by the donor and held in the fund due to their donor status. A supporting organization is a tax-exempt organization that supports other tax-exempt organizations, mainly other public charities, to fulfill its exempt goals.

According to the IRS, all donors should be aware of scams disguised as philanthropic requests. To take advantage of the public's goodwill, criminals form bogus charities. The IRS's Dirty Dozen list of tax schemes for 2021 includes fake charity once again. Together with other international organizations and agencies, the IRS highlighted the fight against charity fraud in October.

Always Maintain Accurate Records

Any taxpayer seeking a charitable donation deduction is subject to special recordkeeping requirements. Obtaining an acknowledgment letter from the charity before filing tax returns is usually required. Keeping a canceled check or credit card receipt for financial gifts is generally required.

Publication 526, Charitable Contributions, is published on IRS.gov and contains information on the recordkeeping regulations for substantiating charitable contributions.

Ines Zemelman, EA
Founder of TFX