Congress has provided several economic incentives to address the far-reaching effects of the COVID-19 pandemic, including additional tax incentives to encourage charitable giving. Of special interest are temporary tax rules for charitable giving enacted by Congress late last year as a part of the Consolidated Appropriations Act of 2021.
Stimulus Changes for Charitable Giving
You may deduct gifts of cash to most public charities to offset as much as 100% of your income! For the 2021 tax year, you may deduct cash contributions to Mass General and most other public charities to offset up to 100% of your adjusted gross income (“AGI”). Ordinarily, the income tax charitable deduction for cash gifts is limited to 60% of your income. This 100% limit allows especially generous donors to reduce their federal income tax to zero. If you are even more generous, you can carry forward unused cash contribution deductions for up to five years.
It may not be the tax-wise choice to deduct up to 100% of your income. Because federal income tax rates are progressive, it may not be to your advantage to deduct 100% of your cash contributions. Check with your financial or other advisors to determine if the 100% deduction makes sense for your specific circumstances.
If you don’t itemize, you may reduce your taxable income by $300 for your charitable contributions in 2021. If you do not itemize your deductions, you can still reduce your taxable income by up to $300 (or $600 for married couples filing jointly) for cash contributions to public charities using an “above the line” adjustment to reduce your taxable income.
Note that these incentives are temporary and are scheduled to expire at the end of 2021.
Qualified charitable distributions are still a great way to make contributions if you are 70½ or older. A qualified charitable distribution (“QCD” or “IRA charitable rollover”) allows you to make a tax-free gift of up to $100,000 to Mass General from your IRA if you are 70½ or older. A qualified charitable distribution can help you make tax-advantageous contributions, especially if you do not itemize your deductions.
For more information on how the latest stimulus legislation may impact your charitable giving, please contact the Office of Planned Giving at email@example.com or (617) 643-2220.