According to the annual Giving USA report, charitable donations in the United States rose to a record $471 billion in 2020, a 3.8% increase from 2019. Charitable foundations led the way with a 15.6% year-over-year increase. Individual giving was mixed but still managed a small rise due in large part to the personal gifts of nearly $6 billion by MacKenzie Scott. Corporate giving declined.
It's good news especially as tax incentives for charitable giving have actually eroded in the last few years, especially for middle and lower income taxpayers. The Tax Cuts and Jobs Act (TCJA) of 2017 limited the deduction for state and local taxes while greatly increasing the standard deduction. As a result, the number of taxpayers who itemize their deductions plummeted by over 50%. Fewer taxpayers itemizing meant fewer taxpayers taking a charitable deduction. Also as marginal tax rates decreased under TCJA, the effective "benefit" of a $1 income deduction also decreased. That decreased benefit was felt proportionally more for taxpayers in the lower, middle, and upper middle brackets than for those in the upper brackets.
However, one important change in 2020 helped minimize some of the impact of TCJA for lower and middle income taxpayers. A tax deduction for charitable contributions was allowed for the first time on Form 1040. This meant that taxpayers taking the standard deduction could also deduct up to $300 in charitable cash donations. This new benefit was most welcome news for charities and for the 87% of taxpayers who now take the standard deduction. The benefit was increased for 2021.
The 2021 "above-the-line" deduction for cash gifts to charities is increased to $300 for individuals and $600 for married couples filing jointly. The usual rules apply. Donations must be made to qualified organizations and the taxpayer must retain records in the form of an receipt from the organization, cancelled check, bank or credit card statement, etc.
Taxpayers who are taking the standard deduction and who are considering charitable donations by the end of the year should be aware of the increased deduction. Every bit helps.
As always at Monadnock Tax Services we are happy to help individuals and families with friendly tax advice and services. Give us a call at (603) 722-0184 or email info@monadnocktax.com