Charitable contributions are one of the best tax-saving opportunities available. Not only does the charity benefit, but taxpayers enjoy tax savings by deducting part or all of their contributions on their tax returns. For 2021 income taxes, due on April 15, 2022, two special rules extend and expand the generous tax treatment for qualifying cash contributions made in 2021:
- You can deduct up to $300 if you're single or married filing separately (or $600 if you're married filing jointly) for cash contributions made to qualifying charities—even if you don't itemize.
- If you do itemize, you can claim charitable contribution deductions for cash contributions up to 100% of your adjusted gross income (AGI).
These tax benefits will not apply after the 2021 tax year unless Congress amends the law, which as of Jan. 13, 2022, has not occurred.
- For a charitable contribution to be deductible, the recipient charity must be a qualified organization under tax law.
- Annual AGI caps limit the total amount of charitable contribution deductions.
- Special rules limit certain deductions based on the type of property donated and the type of tax-exempt organization receiving the donation.
- Taxpayers who do not itemize deductions may deduct up to $300 of cash contributions on single returns—or $600 if married filing jointly—in addition to claiming the standard deduction.
- For 2021, the usual AGI ceiling on charitable contributions is revised to allow taxpayers to deduct up to 100% of AGI for cash contributions made to qualified charities. The IRS, as of Jan. 13, 2022, has not announced the ceiling for the tax year 2022.
The Basics of the Charitable Contribution Deduction
The tax treatment of a charitable contribution varies according to the type of contributed asset and the tax-exempt status of the recipient organization. Rules differ for individuals, businesses, and corporate donors. Also, the amount of the deduction is subject to standards and ceilings.
Which Donations Qualify for Deductions?
Tax law requires that deductions are allowed only for contributions that serve a charitable purpose. A recipient organization must qualify for tax-exempt status as required by the tax code and determined by the Internal Revenue Service (IRS).
The list of eligible entities includes organizations operated exclusively for religious, charitable, scientific, literary, or educational purposes; the prevention of cruelty to animals or children; or the development of amateur sports. Nonprofit veterans’ organizations, fraternal lodge groups, cemetery and burial companies, and certain legal corporations can also qualify, but only if
donations are designated for eligible purposes.
The IRS Tax Exempt Organization Search tool can help verify an organization’s tax-exempt status and determine its eligibility for deductible contributions. A donation to a federal, state, or local government may be eligible if the gift is earmarked for public purposes (such as maintaining a public park). Gifts to benefit a particular individual, for-profit business, or private interest do not qualify as deductible charitable contributions.
"Quid Pro Quo" Contributions
For certain donations, some calculation is required to determine the amount that can be deducted. These include “quid pro quo” donations for which the donor receives an economic benefit—e.g., goods or services—in return for the gift.
For example, if a donor receives a T-shirt in return for making a donation, the deduction is limited to the amount of the contribution that exceeds the fair market value of the shirt. So, if the contribution is $40, and the fair market value of the T-shirt is $20, the deductible amount is $20 (the $40 donation minus the shirt’s $20 value).
The same rule applies for contributions for events like charity dinners, for which the fair market value of the meal must be subtracted from the cost of the event to determine the amount of the deduction.
Deduction for Donated Goods Set at Fair Market Value
Charitable contribution deductions are allowed for donations of goods—such as clothes and household items—to Goodwill, the Salvation Army, and similar charities. Used clothing and household items must be in usable good condition, and the deduction amount is limited to the item’s fair market value at the time of contribution—for example, its thrift-store price.
Special rules apply to vehicle donations. If the fair market value of a vehicle (either a car, a boat, or an airplane) is more than $500, you can deduct the smaller of:
- The gross proceeds from the sale of the vehicle by the organization
- The vehicle's fair market value on the date of the contribution
Conversely, if the fair market value is less than $500, you can deduct the smaller of:
- The vehicle's fair market value on the date of the contribution
When a taxpayer claims more than $500 in total deductions for non-cash contributions, they must file IRS Form 8283 with their tax return. Some tax preparation software packages include calculators to help determine the fair market value of various items. IRS Publication 561 is a useful resource to help you decide the value of your non-cash contributions.
Only taxpayers who itemize their deductions can deduct donations of property as charitable contributions. The 2021 charitable deduction for nonitemizers is limited to contributions made in cash, but for 2022, the contribution amount and itemizations that will be allowed by the IRS have not been set, as of Jan. 13, 2022.
Records to Substantiate Contributions
Taxpayers must keep detailed records to substantiate their charitable deductions. The type of record depends on the type and amount of the contribution: cash, non-cash, and out-of-pocket expenses while donating your services.
Cash contributions include donations made by cash, check, electronic funds transfer, online payment services, debit cards, credit cards, payroll deduction, or a transfer of a gift card that can be redeemed for cash. To deduct a cash contribution of any amount, you must have at least one of the following:
- A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include canceled checks, bank statements, credit card statements, and electronic funds transfer receipts
- A receipt or written communication (including email) from the organization that shows the organization's name and the amount and date of the contribution
- Payroll deduction records (for example, a pay stub or W-2) that show the organization's name and the amount and date of the contribution
Cash contributions over $250 must be backed by a written acknowledgment from the organization stating the amount of the contribution, whether the organization gave any goods or services to the donor as a result of the contribution, and a description and good faith estimate of the value of any such goods or services. Significant property contributions also require appraisals.
Substantiation requirements for non-cash contributions vary depending on the amount of the donation:
- Less than $250: A receipt from the organization showing the organization's name, the date and location of the contribution, and a description of the property.
- Between $250 and $500: "Contemporaneous written acknowledgment" of the contribution from the organization—the acknowledgment must be written and include a description of the property, whether the organization gave you any goods or services as a result of the donation, and a description and good faith estimate of the value of any such goods or services.
- Between $500 and $5,000: Contemporaneous written acknowledgment and you must file Form 8283 with your tax return.
- Over $5,000: Contemporaneous written acknowledgment, a written appraisal of the property from a qualified appraiser, and filing Form 8283 with your tax return.
To deduct out-of-pocket expenses related to volunteer activities, you must have an acknowledgment from the organization that contains:
- A description of the services you provided
- A statement of whether the organization gave any goods or services to the donor as a result of the contribution
- A description and good faith estimate of the value of any such goods or services
Charitable Donation Limits: Special 2021 Rules
For 2021, single taxpayers who claim the standard deduction on their tax returns can deduct up to $300 of charitable contributions made in cash. Married couples filing joint returns can claim up to $600 for cash contributions.
Certain types of contributions are not eligible for the special deduction for nonitemizers, including:
- Gifts of non-cash property, such as gifts of securities
- Contributions to private nonoperating foundations
- Donations to supporting organizations and new or existing donor-advised funds
- Contribution carryforwards from earlier years
Contributions to nonprofit organizations that don't qualify as charities under the tax law—such as homeowner's associations and political organizations and candidates—aren't eligible for the special deduction.
The deduction benefits many taxpayers who do not itemize. Because of the present high levels for the standard deduction and the ceiling on state and local tax deductions, many taxpayers realize more significant tax savings by claiming the standard deduction rather than itemizing. Often, taxpayers whose total itemized deductions would be less than the standard deduction are advised to group their charitable contributions into a single tax year to maximize their tax savings. They may choose to donate in one year the gifts that they might otherwise donate over two years, then skip a year.
For 2021 taxes, some taxpayers, particularly those at low- and middle-income levels with modest charitable contribution totals, may find that the special $300 and $600 deduction negates any benefit from grouping two or more years of charitable gifts.
It may be hard to plan for the 2023 filing system as of January 2022 because the tax rules filing for the tax year 2022 have not been announced by the Internal Revenue Service.
Standard Deductions for 2021 and 2022 Taxes
The 2021 standard deduction is set at $25,100 for joint returns, $12,550 for single individuals and married people filing separately, and $18.800 for heads of household.
For the tax year 2022 (returns are typically filed in 2023), the standard deduction goes up slightly. The standard deduction for married couples filing jointly for the tax year 2022 is $25,900, single taxpayers and married individuals filing separately, the standard deduction rises to $12,950, and for heads of households, the standard deduction will be $19,400 for the tax year 2022.
In 2021, married filing jointly and married filing separately taxpayers who are at least 65 years old or blind can claim an additional standard deduction of $1,350; single filers and heads of household can claim an extra $1,700. In 2022, that amount goes up to $1,400 and $1,750.
An individual who is both over 65 and blind is entitled to double the additional amount in 2021 and 2022. State and local tax deductions are capped at $10,000 ($5,000 if married and filing separately) in both 2021 and 2022.
Raised Deduction Caps
The 2020 increase for deductions of cash contributions is extended one year into 2021. Prior to 2020, the deduction for cash contributions to qualifying organizations was limited to 60% of individuals' contribution base, which is generally equal to a taxpayer’s adjusted gross income (AGI), calculated without any net operating loss carrybacks.
For 2021, taxpayers may deduct the amount of their cash charitable contributions to qualifying organizations in excess of their allowable non-cash charitable contributions and charitable gifts to other organizations, up to the full amount of their AGI. To take advantage of this 100% ceiling, taxpayers must affirmatively elect it (for example, it's not automatic). This higher ceiling enables some taxpayers to eliminate all of their taxable income. If a taxpayer’s contributions exceed the ceiling, the unused amount can carry forward for up to five years.
The organizations that qualify for the increased ceiling for cash contributions include entities that operate for:
- Religious, charitable, scientific, literary, or educational purposes
- The prevention of cruelty to animals or children
- The development of amateur sports
For non-cash contributions and gifts to non-qualifying organizations—which include private non-operating foundations, supporting organizations, donor-advised funds, and other charitable organizations that do not qualify as public charities—total deductions continue to be capped at 20% to 50% of the taxpayer’s AGI depending on the type of property and tax status of the donee organization.
Non-cash contributions are not eligible for the increased ceilings. Non-cash contributions to qualifying organizations continue to be capped at 50% of the individual donor’s AGI. Non-cash donations to non-qualifying entities continue to be capped at 30% of the individual donor’s AGI. Also, contributions of appreciated capital gain property are generally capped at 30% of the AGI if made to qualifying organizations, and 20% of the AGI in the case of non-qualifying organizations, including private non-operating foundations.
The higher ceiling on itemized deductions for 2021 offers a tax-planning opportunity that is potentially attractive to high-bracket taxpayers who make charitable contributions in cash. High-bracket taxpayers planning to make significant cash contributions in 2022 or later might evaluate whether making such gifts in 2021 to take advantage of the temporary higher ceilings would result in greater tax savings than spreading the gifts over two or more years.
2021 Benefits for Businesses
Businesses making charitable contributions in 2021 also are eligible for some increased benefits. Sole proprietors and owners of pass-through business entities report the deductions on their own returns in accordance with the rules for individual taxpayers, including the increased ceilings for cash gifts.
For C corporations, contribution limits are increased for cash donations from 10% to 25% of taxable income (with some adjustments). The 25% cap does not apply automatically; it must be elected on a contribution-by-contribution basis.
Note: The benefits for business in the 2022 tax year which is typically filed in 2023, have not been announced as of Jan. 13, 2022.
Special rules apply to businesses’ contributions of food inventory. The cap on such contributions generally increases from 15% of the net income for owners of pass-through businesses and from 15% of taxable income for C corporations to 25% in each case.
Other Benefits for Specific Circumstances
From time to time, the tax code provides ceilings higher than those that generally apply to special-interest situations—for example, to assist recovery from a disaster or to benefit a specific industry or purpose.
Currently, a qualified farmer or rancher can claim a qualified conservation deduction of up to 100% of their adjusted gross income (less other allowable charitable deductions) for a contribution of property for agriculture or livestock production provided that the property continues to be used or be available for such production.
Is the $300 Deduction for Nonitemizers Available for 2021?
Yes. For the 2021 tax year, single nonitemizers can again deduct up to $300 in cash donations to qualifying charities. The 2021 deduction for married couples who take the standard deduction has increased; they can deduct up to $600 of cash contributions. Qualifying charities include public charities and operating foundations but not private foundations, supporting organizations, or donor-advised funds. This special deduction will not be available in 2022 unless the present law is extended. And as of Jan. 13, 2022, it has not been extended by Congress.
How Much Can Taxpayers Who Itemize Deduct for Charity?
The 2021 tax year offers a special, generous allowance. Usually, individual itemizers are allowed to deduct up to 60% of their adjusted gross incomes (AGI) for cash donations to qualified charities. However, in 2021, they generally can deduct cash contributions equal to 100% of their AGI. Note that non-cash contributions and donations to charities that do not qualify for the special rule will reduce the ceiling amount for qualifying cash donations.
Corporations also have an increased ceiling for cash charitable contributions in 2021. For cash donations, the ceiling increases from 10% to 25% of taxable income (with some adjustments) for “C” corporations.
This special deduction will not be available in 2022 unless the present law is extended. And as of Jan. 13, 2022, it has not been extended by Congress.
Do the Increased AGI Ceilings on Charitable Deductions Apply Automatically?
Both individual and corporate taxpayers have to affirmatively elect the increased ceilings for their cash charitable contributions. Individuals must make their elections for specific contributions and report the election with their Form 1040 or Form 1040-SR. Similarly, C Corporations must elect to apply the 25% ceiling on a contribution-by-contribution basis.
The Bottom Line
In response to the financial pressure and economic uncertainty, taxpayers received a special opportunity from Congress to benefit from tax savings by deducting all or part of their charitable contributions on their tax returns for tax years 2020 and 2021. This is a special temporary rule, however, and as of Jan. 13, 2022, there is no indication if taxpayers will continue to enjoy this specific charitable contribution tax benefit in the future.