Charitable Contributions Can Earn You a Big Tax Break This Year

Financial tips

Charitable Contributions Can Earn You a Big Tax Break This Year

Posted by Infinite Wealth Advisors, LLC
2 months ago | December 11, 2020

As far as tax years go (and in every other sense) this year has been a pretty wild ride. 2020 has roughed us up, and yet we’ve all come together to help each other, perhaps like never before. Those of you who are able to make charitable contributions are truly providing an invaluable benefit to society.

Now, I have some good news for you: The IRS has lifted the customary limit on charitable contribution deductions, allowing you to earn a practically unlimited deduction on this year’s taxes.

In most tax years, the charitable contributions deduction is limited to 60 percent of your adjusted gross income (AGI). You’re always free to contribute more than that limit, of course, but the deduction stops at 60 percent of AGI. This year, in response to increased need along with strain on charitable organizations, the IRS has lifted the usual limit. You can now deduct 100 percent of your charitable contributions from your taxable income for the year.

Not only could you theoretically deduct an amount equal to your entire AGI; you could even carry forward any extra deductions, above 100 percent of AGI, to next year.

Of course, all tax deductions are subject to some rules, and charitable contributions are no exception. As you write those checks, be mindful of these guidelines:

  • Only taxpayers who itemize returns can claim charitable deductions
  • The new limit (beyond 60 percent of AGI) applies to cash donations only, and you should keep proof of your donations on file
  • A receipt will suffice as proof, or you can use your credit or debit card statements
  • Only donations to IRS-approved nonprofit organizations, or religious institutions, qualify for the tax deduction
  • Donations of your time are not tax-deductible, but necessary supplies, transportation, and parking usually qualify
  • If you receive anything in return for your donation, you can only claim the amount of your donation that exceeds the value of the item
  • Donations to individuals unfortunately do not count toward the charitable contributions deduction, but passing donations through a local charity is always a possibility
  • Contributions to charity must be made by December 31 in order to be counted on this year’s tax return

If you do plan to donate more than 20 percent of your AGI to charity, the rules can become more complicated. Speaking to a tax professional before making any big decisions can save you time and stress later.

Thank you for thinking of others during these difficult times. This tax break can be significant, and you certainly deserve it!

 

 

 

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