Get to know the IRS, its people and the issues that affect taxpayers
By Sunita Lough
CL-21-32, December 13, 2021
We’ve entered our second season of giving during this Coronavirus pandemic and helping those in need is once again on the forefront of many people’s minds, including IRS employees and myself. Many charities continued to struggle this year and donations for many are down. Supporting these charities is an important way to provide food, clothing and other support to people in our communities and around the country, and we at the IRS want to encourage people to do what they can to help this year.
To that end, I want to remind people and businesses of the potential deductions available for eligible individual and business charitable donations as a result of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It’s important to understand special changes in law impacting charitable contributions and deductions remain in effect until Dec. 31, 2021.
These special changes could help people when they file their 2021 federal tax returns in 2022. I want to make sure everyone knows what provisions are still in effect, so here’s a quick rundown:
Just like last year, individuals, including married individuals filing separate returns, who take the standard deduction can claim a deduction of up to $300 on their 2021 federal income tax for their charitable cash contributions made to certain qualifying charitable organizations. For married individuals filing a joint return, the maximum deduction is increased to $600.
Under the temporary law, taxpayers don’t need to itemize deductions on their tax returns to take advantage of this, which creates tax-favorable donation options not normally available to about 90 percent of tax filers. Ordinarily, people who choose to take the standard deduction cannot claim a deduction for their charitable contributions.
Due to this special provision, many people may not realize that if they make a cash donation to a qualifying charity before the end of 2021, they can get a deduction of up to $300. Even better, it’s easy to report when filing Form 1040 in 2022 electronically. The deduction lowers both adjusted gross income and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations.
Individuals who do itemize may claim a deduction for charitable cash contributions made to qualifying charitable organizations, subject to certain limits. These limits typically range from 20% to 60% of adjusted gross income (AGI) and vary by the type of contribution and type of charitable organization. The law now permits people to apply an increased limit, up to 100% of their AGI, for qualified contributions made during calendar-year 2021. Qualified contributions are contributions made in cash to qualifying charitable organizations.
In either case, it’s important to note that cash contributions to most charitable organizations qualify, but cash contributions made either to supporting organizations or to establish or maintain a donor advised fund, do not. Nor do cash contributions to private foundations and most cash contributions to charitable remainder trusts. See Publication 526, Charitable Contributions for more information on the types of organizations that qualify. And please keep in mind that an individual's other allowed charitable contribution deductions reduce the maximum amount allowed for this one. Eligible individuals must make their elections with their 2021 Form 1040 or Form 1040-SR.
Prior to the passage of the new laws during the pandemic, the maximum allowable deduction was limited to 10% of a corporation's taxable income. The law now permits C corporations to apply an Increased Corporate Limit of 25% of taxable income for charitable contributions of cash they have made to eligible charities in 2021. But keep in mind that it doesn’t automatically apply, so C corporations must elect the Increased Corporate Limit on a contribution-by-contribution basis. For more information about these and other COVID-19 provisions, visit IRS.gov/coronavirus.
Food banks, shelters and charities have shared urgent alerts for food donations to take care of people in need during the pandemic, and across the country, individuals and businesses have answered the call. Businesses who were able to donate portions of their food inventory or can donate it by the end of the year may qualify for increased deduction limits on their 2021 taxes, if their donations are eligible for the existing enhanced deduction limited to contributions for the care of the ill, needy and infants. For contributions made in 2021, the limit for these contribution deductions increased from 15% to 25%. The 25% limit is based on the taxable income for C corporations, and for other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their aggregate net income for the year from all trades or businesses from which the contributions are made.
While we want legitimate charities and the people they serve to benefit from the generosity of caring Americans, we also want to protect those who plan to donate from being scammed by criminals.
Before you donate to a charity you learned about online or through mailings or phone calls, you can go to IRS.gov to make sure the charity is legitimate. It’s sad but true: When situations like the pandemic and natural disasters occur, some charities pop up overnight to attempt to profit from people’s good will, and they don’t have tax-exempt status. That’s why my organization developed the Tax Exempt Organization Search (TEOS) tool to help prospective donors make sure an organization is eligible for tax-deductible donations. We also have more information available in Publication 526, Charitable Contributions, and on the TEOS site.
Here’s another important piece of advice: No matter what charity you decide to contribute to this year, make sure you keep good records when you donate. Get a receipt or some type of written acknowledgement from the charity and retain a cancelled check or credit card receipt. Under the law, special recordkeeping rules apply to any taxpayer claiming a deduction for a charitable contribution.
I want to thank everyone who will donate their time, money or resources to those in need this holiday season, and to those who did so throughout the year. It’s that spirit of giving that binds us together in these challenging times. And I’m proud of the work my organization and everyone at the IRS does to serve our fellow Americans, both at work and in our communities. We are committed to ensuring that taxpayers who generously make a difference through their charitable support are aware of the relief the government provides for them.
On behalf of all of my IRS colleagues, we wish you all a safe and happy holiday season.
Sunita Lough
Commissioner, Tax Exempt and Government Entities Division
