A tax break for charitable donations is slated to finish quickly — This is how you can use it earlier than it disappears
As tornado victims in the South and Midwest dig from the rubble of the violent weekend storm, tax authorities and nonprofit industry pundits highlighted a valuable charitable deduction for small-dollar donors due to expire in weeks.
It’s a conclusion that they hope could trigger more donations to all kinds of organizations working for the common good, if only more people would benefit from it.
Currently, individuals can claim the standard deduction – which most people do – but they can also claim an additional deduction of up to $ 300 this year for monetary donations to charities. For married couples filing together, the deduction limit this year is $ 600.
These contributions can be good for the world and also good for the amount of taxpayers’ calculations. In some cases, a $ 600 deduction could reduce a household’s tax liability by about $ 150, an expert previously told MarketWatch.
Currently, the $ 300/600 credit expires after December 31st. Proponents would like lawmakers to extend the provision so that it applies after that point in time. Almost 400 nonprofits wrote to the leaders of Congress on Tuesday asking them to extend and widen the withdrawal. The Charitable Giving Coalition said it supported a bill that would raise the cap to about $ 4,000 for individuals and about $ 8,000 for married couples.
An ‘over-the-line’ deduction for charitable giving
Traditionally, charitable donations are written off as people break down their deductions. But in the early days of the pandemic, lawmakers enacted an “over the line deduction” to offer more tax rewards for charitable giving – and hopefully more donations. Over-the-line prints don’t need to be broken down, a process that usually requires more time and paperwork. A year ago, Congress updated the rules to be up to date.
“The need is big in the second winter of the pandemic,” said Sunita Lough, commissioner for the IRS’s Department of Tax-Exempt and Government Agencies, during a press event Monday highlighting the deduction. “Because of the terrible events in our country with the tornado, the need is increasing and the people out there are suffering.”
The people are hurt, as are the nonprofits that serve them.
Charities raised a record $ 471 billion last year, according to Giving USA. Individual donations accounted for $ 324 billion, up 1% adjusted for inflation.
But that also takes into account mega-donors like MacKenzie Scott, the ex-wife of Amazon AMZN, -0.33% founder Jeff Bezos. Scott donated nearly $ 6 billion last year and has maintained her philanthropic streak this year.
Remove the high-end donations and individual charitable gifts would have declined in 2020, said Ben Kershaw, director of public order and government relations for the Independent Sector, a coalition of nonprofits and foundations.
Kershaw pointed to data showing that contributions rose 28% from exactly $ 300 on December 31, 2020. This is a sign that tax incentives have done their job, Kershaw said. “But more needs to be done.” IRS statistics on the number of households who took advantage of the tax break in the past year were not immediately available.
The rules for charitable giving have also changed for Itemizer
Around 90% of taxpayers simply take the standard deduction and skip the breakdown, the IRS found. High-end taxpayers are more willing to break down their deductions, according to the Tax Policy Center.
Changes in the pandemic era also affected the rules for donating items to charitable causes. Previously, the charity deduction for retailers “was typically limited to 20% to 60% of their adjusted gross income,” the IRS noted. The variation depended on the type of contribution and the organization that received it. But under the CARES Act of March 2020, the legislature increased the deduction to 100% of a taxpayer’s adjusted gross income. Last December, they extended the withholding to 2021 in the same bill that expanded the rules for deducting input tax for charity.
“The law now allows taxpayers to claim up to 100% of their AGI for qualifying contributions in the 2021 calendar year,” the IRS said.
Nonprofits face labor shortages
Like many other employers dealing with the current labor shortage, many charities are struggling to find and retain employees.
According to new polls by the National Council of Nonprofits, a third of nonprofits had vacancies between 10 and 19%, while a quarter said 20 to 29% of their positions were vacant. Eight out of ten nonprofits said salary competition was an obstacle preventing them from filling vacancies. Burnout and lack of childcare are other factors contributing to the staff shortage, respondents said.
It all boils down to less service to those in need, said David Thompson, vice president of public policy for the National Council of Nonprofits.
For example, a safe haven in Montana for victims of domestic violence will be secured for a month because it has insufficient staff, Thompson said during the press briefing on Monday. “Right now, the frontline charities need donations of all sizes,” Thompson said.
“We’re asking the public to ensure our roommates are getting the services they need by taking full advantage of this temporary, non-segregated venture – we have 18 days left,” said Thompson.
Individuals wishing to claim the charity deduction should verify that they are donating to a legitimate charity (the IRS has a tool that donors can use to do this) and keep a copy of the receipt or gift receipt. The IRS has more tips on how to use the Donation Dump here.
This story was updated on December 14th.