2021: A Good Year to Give

The American College of Financial Services
February 1, 2021

In the wake of a devastating global pandemic and economic slowdown, many Americans, as well as community and nonprofit groups, need a helping hand. As the U.S. economy rebuilds in 2021, your gifts can help struggling families recover from a difficult year. 

While giving is its own reward, this year it can also help  reduce your tax burden, thanks to certain key provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 and the Consolidated Appropriations Act of 2021 (CARES 2).

The CARES Act introduced several tax benefits for contributions to qualified non-profits in 2020 and, in December 2020, CARES 2 extended these benefits to 2021 – in some cases, improving upon them.

 

Figure 1: Key 2021 Tax Benefits

 

 

These benefits can have a sizable impact on Americans’ tax bills and, even more importantly, on nonprofits' ability to help those who are struggling.

For the approximately 85% of taxpayers who do not itemize their deductions, the CARES Act introduced an above-the-line deduction of up to $300 for individuals – and, under CARES 2, $600 for those filing jointly – for cash donations to qualified charitable organizations (QCOs). 

A couple in the 32% marginal tax bracket that takes the standard deduction could save $192 in federal taxes on a $600 cash donation. Thus, the out-of-pocket cost of a $600 gift would be just over $400, enabling taxpayers to give more when it matters most.

For itemizers, the limit of 60% of AGI on deductions for cash gifts to QCOs is removed. This creates an opportunity for those who wish to recognize certain income sources – if it is recognized in 2021, federal taxes can be offset by making a cash donation to a QCO equal to up to 100% of AGI. 

An itemizer could, for example, sell securities that have lost value, realize the capital loss, and donate the proceeds to charity, enjoying a tax deduction of up to 100% of AGI on the gift. 

For corporations, the deduction for charitable giving is increased to 25% of taxable income, up from 10% before the CARES Act. This benefit can synergize with the individual tax credit – if a company matches the gifts made by employees up to $600, the real, out-of-pocket cost for a total gift of $1,200 could be just a few hundred dollars – great news for organizations, individuals, and nonprofits alike.

 

Figure 2: How Much Could You Save?

 

 

Given the great need facing charitable organizations today, your gifts have never been more important. In 2021, however, it is not only struggling families that will benefit from your generosity – your donations can also benefit your own family by reducing your tax bill.

Invest in your career with a professional designation.

One of the keys to philanthropic success is proper financial planning. Through the three-course Chartered Advisor in Philanthropy® (CAP®) designation program, you will learn how to help philanthropies maximize their donations and resources. The CAP® is designed for experienced professionals in both the financial services and nonprofit sector, and gives you the power to do more with your career.

Learn More