Let Your Donors Know – 2021 Tax Incentives

Here are SPECIAL 2021 TAX INCENTIVES FOR GIVING for you to let your donors know. Congress has provided several economic incentives to help address the far-reaching effects of the COVID-19 pandemic, including additional tax incentives to encourage charitable giving. These incentives are temporary and are scheduled to expire at the end of 2021.

If your donors itemize deductions: For the 2021 tax year, they may deduct cash contributions to your nonprofit to offset up to 100% of their income. Ordinarily, the income tax charitable deduction for cash gifts is limited to 60% of income. This 100% limit allows especially generous supporters to reduce their federal income tax to zero. If a supporter wants to donate more than 100% of their income, they can carry forward unused cash contribution deductions for up to five years.

This time-limited benefit only applies to public charities. It is not applicable to gifts to donor advised funds or supporting organizations.

The 100 percent limit is reduced dollar-for-dollar by other itemized charitable deductions. This means that in 2021, a donor who deducts 30 percent of their AGI in long-term appreciated property gifts (i.e. taxable securities gifts or gifts of real estate) will be able to also deduct up to 70 percent of AGI for qualified cash gifts—a total deduction of up to 100 percent of AGI. (* It may not be the tax-wise choice to deduct up to 100% of income. Because federal income tax rates are progressive, it is not a given that it will be to the donor’s advantage to deduct 100% of their cash contributions. Advise your donors to check with their financial or other advisors to determine whether the 100% deduction makes sense for their specific circumstances.)

If your donor takes the standard deduction: If they do not itemize their  deductions, they can reduce their taxable income by up to $300 (or $600 for married couples filing jointly) in 2021 for contributions of cash to public charities.

Qualified charitable distributions (QCD) from the donor’s IRA are still a great way to make contributions if you are 70½ or older. Many donors may find the IRA QCD a tax-wise option beginning at age 70 ½, though (as of January 1, 2020) required minimum distributions are not required until age 72. They can download the forms they will need to complete their gift offline at freewill.com.

Because everyone’s situation is different, encourage your donors to seek professional legal, estate planning, and financial advice before deciding on a course of action. This information does not constitute legal or financial advice and should not be relied upon as a substitute for professional advice.

We welcome your comments about this post on the LAPA blog.

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