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New for 2021: The Consolidated Appropriations Act

In late December, Congress passed, and the President signed the Consolidated Appropriations Act What does this mean for charitable giving?

The Act extends incentives to encourage taxpayers to donate to worthy causes. The CARES Act, which was passed in the spring, established an above-the-line deduction, allowing a write-off of up to $300 in cash donations to charity for 2020.It’s available to filers who take the 2020 standard deduction.

In the Consolidated Appropriations Act 2021, the deduction increases to $600 for joint filers starting in 2021. It will still be $300 for single taxpayers. Remember that deductions lower your taxable income based on your income tax bracket. That means the higher your bracket, the greater your tax savings.

For 2020, the CARES Act also allowed a more generous write-off for donors who itemize deductions on their tax returns. Households can deduct up to 100 percent of their adjusted gross income on cash donations made to qualifying charities. Private foundations and donor-advised funds are excluded. Normally, you can write off up to 60 percent of your adjusted gross income (AGI) for cash donations. Lawmakers extended the 100 percent deduction for cash into 2021.

As attractive as the larger deduction may seem, cash is probably the least tax-efficient way to donate. A smarter tax-planning play would be to donate appreciated assets, including stocks or mutual funds, directly to a donor-advised fund (DAF).

The Cares Act extends into 2021 the increase in the percentage limitation on cash contributions by corporations, from 10 percent to 25 percent, and the increase in the limitation on contributions of food inventory, from 15 percent, also to 25 percent.

As of now, if you have a required minimum distribution (RMD) from an IRA, you must take the RMD in 2021.  If you are 70 1/2 or older, this is a great way to fund an endowment or restricted fund by using your RMD.  Remember, you may donate up to $100,000 directly to a nonprofit or restricted fund at the Foundation and it counts towards your RMD.  You may not donate this to a DAF, supporting organization, or private foundation.

Don’t hesitate to call us if you have any questions. As new stimulus and legislation is enacted Atlanta Jewish Foundation will keep you informed.