Good news: You’re probably eligible for hundreds of dollars in extra tax deductions if you donate to charity by the end of 2021.
Under the current tax code, donating to charity won’t reduce most taxpayers’ bills from the IRS. However, this year, you can take a $300 deduction by making an eligible donation to a charity ($600 if you file taxes jointly).
The standard tax deduction for an individual in 2021 is $12,550 and $25,100 for married couples filing jointly. You can reduce your taxable income by that amount. Or you can forego the standard deduction and file itemized deductions instead. That would make sense only if your itemized deductions add up to more than the standard deduction. (The IRS doesn’t allow you to take the standard deduction and add itemized deductions on top of it.)
To simplify what I’m talking about, let’s say you make $100,000 per year and file your taxes individually. You can take the standard deduction and be taxed on $87,450. Or you can take itemized deductions.
Let’s say your only itemized deduction is a $5,000 donation to a qualified charity. If you took that instead of the standard deduction, you’d get taxed on $95,000 of income.
However, the CARES Act created a temporary provision that’s still in place for 2021. It’s set to expire after this year.
You must make the donation in dollars (as opposed to donating items, property or stock). And you need to get a receipt.
But if you do that, you can take your standard deduction and get up to $300 ($600 if filing jointly) off your taxable income.
In other words, if you haven’t done so already, you have until Dec. 31 to contribute to a charity and reduce your 2021 tax bill.
Money expert Clark Howard recently discussed how to find the best charity for you to donate to. If you’re interested in doing good while also getting a tax benefit, check out this article.