Save a Little on Your 2021 Income Taxes

In December, Congress passed the Taxpayer Certainty and Disaster Tax Relief Act of 2020. This bill extended many of the provisions of the CARES Act to the end of 2021, including some tax breaks that might help you reduce your tax owed.

Deduct Without Itemizing

Normally, deductions for charitable contributions are only available to those who itemize their deductions, as opposed to claiming the standard deduction. This means that, for most filers in most years, you cannot deduct your gifts to charity on your taxes. However, until the end of 2021, even those claiming the standard deduction can deduct up to $300 ($600 for married couples filing jointly) for charitable gifts. Most donations will qualify, including those made to your local food bank, the Red Cross, or even your church. Donations to donor-advised funds, supporting organizations (those that don’t do direct charitable work but support other charities to do), private foundations, charitable remainder trusts, and donations carried forward from a previous year do not qualify for deduction under this rule.

100% Deductions for Itemizers

Most years, those who itemize deduction can only deduct charitable donations equal to a certain percentage of their adjusted gross income (20%-60% depending on circumstances), with any excess amount carried forward for up to five years. However, for any donations made in 2021, itemizing taxpayers can deduct donations up to 100% of their adjusted gross income. Like with the above deduction, donations to donor-advised funds, supporting organizations (don’t do direct charitable work but support other charities), private foundations, and charitable remainder trusts do not qualify for deduction.

Increased Corporate Deduction

If you run a C-corporation, your company can usually deduct for charitable contributions up to 10% of its taxable income. However, in 2021 that limit is increased to 25% of the corporation’s taxable income. This is a chance for corporations to help their communities while getting double the deduction in exchange.

Food Donations

Businesses that donate food inventory to charity can normally claim a corresponding deduction up to 15% of all net operating income, but this year that deduction is increased to 25% of net income (or taxable income for C-corporations). For those running restaurants, grocery stores, or other food businesses, this presents a chance to help local food banks while getting larger deductions than usual for donating overstocked food.

Due Diligence

As always, be sure to keep thorough records of any donations you intend to claim on your taxes. For assistance with these and any other tax or business issues you may have, contact the attorneys at McNeelyLaw LLP.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.