How CARES Act Extensions Affect Your 2021 Charitable Tax Deductions

It's important to understand how CARES Act provisions may impact your charitable contributions in the 2021 tax year.
It's important to understand how CARES Act provisions may impact your charitable contributions in the 2021 tax year.

To help American workers and businesses mitigate the devastating economic effects of the coronavirus outbreak, in March 2020 the government signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Included in the original CARES Act were key provisions that encouraged individuals and corporations to help nonprofit organizations providing direct services and support to those impacted by COVID-19.

As a result of the Consolidated Appropriations Act, 2021, several of these provisions were extended or expanded into 2021. They may impact your 2021 charitable tax deductions as described below.

  • Extension: $300 deduction for those who claim the standard deduction.
    Individuals who plan to take the standard deduction for their 2021 tax returns may claim an above-the-line deduction of up to $300 for cash donations to qualifying public charities. As many as 85 percent of Americans do not itemize their tax returns, making them previously ineligible for charitable deductions.
  • Expansion: $600 deduction for married couples.
    For 2021, this above-the-line deduction is increased to $600 for cash donations for married couples filing jointly who do not itemize tax deductions.
  • Extension: Charitable giving deduction limit increased to 100 percent of Adjusted Gross Income (AGI) on cash donations for those who itemize.
    Donors may continue to receive a federal income tax deduction for charitable contributions of up to 100 percent of their AGI for certain cash donations made during calendar year 2021. Prior to 2020, this number was 60 percent.
  • Extension: AGI limit for cash contributions increased to 25 percent of taxable income for corporations.
    The AGI limit for cash contributions also remains increased for corporate donors. Corporations can deduct up to 25 percent of taxable income. Prior to 2020, this number was 10 percent.

“It is always great to see the government keep or write in law that motivates Americans to go after their charitable goals while also getting a tax benefit,” shared Lorenzo Sanchez, CFP®, Principal, Director Wealth Management at Rowling & Associates.

“Like most tax laws, these items may seem simple when examined in a silo, but you should consult with a tax professional to properly incorporate them into your short and long-term tax plan,” he shared.

Importantly, the CARES Act suspension of the Required Minimum Distributions (RMD) from most retirement plans for 2020 has not been extended into 2021.

Supporting San Diegans in Need

These federal income tax deductions do not apply for gifts made to donor-advised funds, supporting organizations and/or private foundations.

Although federal law does not permit donor-advised funds to accept gifts afforded by CARES Act charitable deductions in 2021, it does represent an opportunity for donors to support scholarship, field-of-interest or designated funds, including programs and funds at The San Diego Foundation, such as our Strategic Initiatives Fund, Black Community Investment Fund or Community Scholars Initiative.

As you continue to look for ways to help San Diegans in need, be sure to contact our Donor Services Team at (619) 814-1332 or donorservices@sdfoundation.org to speak to us about your year-end giving needs and to better understand how CARES Act provisions may impact your charitable contributions in the 2021 tax year.