- Who Can Benefit
- 100% AGI Deduction
- Corporate Tax Deduction
- How To Deduct Charitable Donations?
- How much can I deduct?
- Donations Example and Summary
- An Even Better Tax Deduction
- What Could Be Better Than That?
- Other Options
- Huge Tax Savings Are Possible
- Better Part of Valor-Get An Expert Side Check
- How To Claim Donations On Your Tax Return
- Things to remember about tax deductible donations
- Limitations on Charitable Donations
2020 was the first time ever that you could deduct 100% of your AGI (adjusted Gross Income) for charitable donations. This law is now extended for 2021.
This post will give you the latest information as to how you can deduct up to 100% of your 2021 income by making charitable donations and will also discuss even better options.
When finished, you will know how to maximize the tax benefits of charitable donations. If you are an eligible charity, you can advise potential donors on this.
You are welcome to contact me if you have any questions.
Who Can Benefit
You can benefit if you are an individual, church, minister, pastor, clergy or other charity and can use this data to help make a better world. Those receiving this article are invited to share the articles with others.
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100% AGI Deduction
Charitable donations in 2021 have been increased up to 100% of your Adjusted Gross Income (AGI) as part of the US Government CoronaVirus Tax Relief package.
You can potentially ZERO OUT your taxable income for federal income tax purposes by making charitable donations!!!!
But there is an Even Better Tax Deduction in certain cases. See “An Even Better Tax Deduction” sub-heading below. What’s better than 100%???? See below.
Please note that federal income tax is distinct from Social Security and Medicare and you may still need to pay for these.
Corporate Tax Deduction
Also C Corporations (not S Corporations) can deduct up to 25 % of their taxable income in 2021. This is up from 10% in prior years.
S Corporations by definition do not have taxable income and the profit will be taxed when it flows through to the personal tax returns of the shareholders through a K-1.
Thus the shareholders of an S Corporation can deduct charitable donations up to 100% of their personal AGI as covered above
How To Deduct Charitable Donations
Tax deductible donations are contributions of money or goods to tax-exempt organizations (charities) Tax deductible donations can reduce your taxable income. To claim tax deductible donations on your taxes, you must file a Schedule A with your form 1040 and itemize your deductions there.
For the 2020 tax year, there’s a twist: you can deduct up to $300 of cash donations without having to itemize. This is called an “above the line” deduction. So you can do $300 even if you do not itemize.
How much can I deduct?
For 2020, you can deduct up to 100% of your adjusted gross income via cash charitable donations. Cash donations include cash, checks, bank transfers and credit card charges. They do not include property or stock.
In 2018 and 2019, you were limited to a maximum of 60% of your adjusted gross income via charitable donations.
Prior to that, the limitation was 50% of your adjusted gross income.
If you are making a cash donation to a church or eligible charity, you are all set to take advantage of the 100% deduction in 2020.
Donations Example and Summary
Suppose you donate $200,000 and your AGI was only $100,000? Then you can deduct the $100,000 (reducing your federal income tax to zero) and carry over the rest.
- The limit applies to all donations you make throughout the year, no matter how many organizations you donate to.
- Contributions that exceed the limit can often be carried over and deducted on your tax returns over the next five years — or until they’re used up.
- For the 2020 and 2021 tax year, you can deduct up to $300 of cash donations without having to itemize. This is called an “above the line” deduction.
An Even Better Tax Deduction
Being able to take 100% of your income as a deduction is amazing. But in the case of people who own their own business, stock, or real estate that has increased in value, there is an even better deduction.
Suppose you own a business or stock that over the years has appreciated in value. Or suppose you own real estate that you purchased decades ago that has gone up in value, from say $200,000 to $3,000,00.
If sold, this real estate would be subject to tax as a Capital Gain Tax on $2.8 Million in profit.
In the real estate example, the profit would be $2.8 million. In the stock example, suppose you also made a $2.8 Million profit.
Or you could have your own business ( which could be a Sole Proprietorship, LLC, S Corp or C Corporation). Probably it had zero value when you started. Let us assume you can sell it for $2.8 million, thus again a $2.8 million dollar profit.. Probably it had zero value when you started. Let us assume you can sell it for $2.8 million, thus again a $2.8 million dollar profit.
In any of these cases in 2020, you could sell the asset for $2.8 million dollars profit, donate that $2.8 million dollars to charity and reduce all that taxable income to zero!
Great Deal! But….
What Could Be Better Than That?
Do not sell the property. Donate it to Charity and let the Charity sell it!!!!!!
You make 0 income off the sale of the property and have a $2.8 million dollar deduction.
That is right! You made no taxable profit off the sale and you get a tax deduction! Now it will be limited to 30% of your AGI, But the sale itself was not part of your income. And you can roll it over into the next five years if you cannot use it in the first year. Now, if you make $466,666 per year in adjusted gross income, you could zero out your income for the current and next five years!!
Yes, That is right. You donate 2.8 million dollars by donating unsold stock, an unsold business, an unsold property worth $2.8 million and then for the current year and five succeeding years you could pay no income tax.
And your Charity Got 2.8 million dollars!!
Of course, you have to have enough income to deduct it against!
YES! That is correct! You get $2.8 million dollars in deductions you can use over the current and next five years!! And you got ZERO taxable income on the sale.
This applies to lesser donations as well, but it is only useful if it exceeds your standard deduction.
You can play with various ways.Suppose you want to make a big donation but also you need money to live on
You could donate 2,153, 849 worth of stock to an eligible charity. $646,151 you could sell directly (30% of the donation) generating income from the sale to you of this amount.
So you have $646,151 of tax free cash from the sale. And you also have $2,153,849 -646,151=$1,507,698 available to deduct the next year and following four years, up to 30 % of AGI per year.
There are many other ways to do this. Maybe you donate a percentage of your stock, company or real estate and your charity gets a $100,000 donation and you get a $30,000 deduction which you use to reduce your taxable income from your wages.
Huge Tax Savings Are Possible
I realize that this may seem a bit mind boggling, and not everyone is a tax professional or has a degree in Mathematics like I do. But I am giving the details here so you can get the idea HUGE TAX SAVINGS ARE POSSIBLE.
Better Part of Valor-Get An Expert Side Check
I highly recommend before you implement such a strategy you contact myself or another trusted tax professional who is familiar with charitable donations.
As a disclaimer, taxes and mathematics are often very confusing and misunderstood subjects to a high percentage of the American people, and so before you fully implement the strategy, have someone who is a tax expert and you trust look at it.
This is important. I have had many tax clients totally misinterpret something they read or heard which they did not understand, and then got far-fetched ideas. Discretion is the better part of valor here. So contact me or a trusted tax advisor before you proceed
But hear me clearly. If you have stock, a business, or property that has gone up in value, you may be eligible for a dramatic tax break. And if what I am saying here seems confusing or far-fetched, check it out with me or a trusted tax professional
One again, you are welcome to contact me.
How To Claim Tax Deductible Donations On Your Tax Return
- Itemize: When you file your tax return every year, you’ll need to itemize your deductions in order to claim tax deductible donations to charity. That means filling out Schedule A. Remember you can deduct up to $300 of cash donations without having to itemize.
- Analyze costs and benefits ahead of time: There is no reason to itemize unless you get above the standard deduction. The table below gives the standard deductions for 2019 and 2020.
|Filing status||2019 tax year||2020 tax year|
|Married, filing jointly||$24,400||$24,800|
|Married, filing separately||$12,200||$12,400|
|Head of household||$18,350||$18,650|
Things to remember about tax deductible donations
Tax deductible donations must meet certain criteria:
1. Donate to a qualifying organization
- Your charitable giving will qualify for a tax deduction only if it goes to a tax exempt organization, as defined by section 501(c)(3) of the Internal Revenue Code. Examples of qualified institutions include religious organizations, the Red Cross, nonprofit educational agencies, museums, volunteer fire companies and organizations that maintain public parks.
- An organization can be nonprofit without 501(c)(3) status
- You can verify an organization’s status with the IRS Exempt Organization Select tool.
2. Document your contributions
Keep track of your tax deductible donations, no matter the amount. If you made a monetary contribution, qualifying documentation includes a bank statement, a credit card statement and a receipt from the charity (including date, amount and name of the organization) or a cancelled check. If you made a contribution as an automatic deduction from your paycheck through your keep copies of your W-2 or pay stubs showing the amount and date of your donation.
- Cash or property donations worth more than $250: The IRS requires you to get a written letter of acknowledgement from the charity. It must include the amount of cash you donated, whether you received anything from the charity in exchange for your donation, and an estimate of the value of those goods and services. You must receive the letter of acknowledgement by the date you file your taxes.
- If you deduct at least $500 worth of noncash donations, you will need to fill out Form 8283. You do not need to fill out this form for donations of $500 or less.
- Additionally, you must attach an appraisal of your items to the form if they’re worth more than $5,000 total.
3.Tax deductions for volunteering
IRS rules don’t let you deduct the value of your time or service, but expenses related to volunteering for a qualified organization can be tax deductible donations.
- Expenses must be directly and solely connected to the volunteer work you did.
- Your tax deductible donations can include mileage you drive to charitable events and volunteer opportunities, or mileage you used to bring items to a donation site.
- You can either deduct your actual expenses using receipts for gas and similar costs, or you can take the standard mileage deduction. For 2020, it’s 14 cents per mile when you use a vehicle in service of a charitable organization.
- Keep your receipts or records if you plan to deduct your actual expenses as you may need these if you are audited. If you pay all of your donations on a credit card or by check and can show who donations are for.
Limitations on Charitable Donations
You may be limited to 20%, 30% or 50% depending on the type of contribution and the organization (contributions to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations come with a lower limit, for instance). IRS Publication 526 has the details.
We live in troubled times. Many Americans believe their Church of their Charity is a better repository for their dollars than the Internal Revenue Service.
Our Lawmakers seem to agree. So do I.
Use this data! Make your donation to a better world! And get a tax break as well!
The most important take-aways from this article are:
- You can deduct up to 100% of your Adjusted Gross Income in 2020.
- If you contribute a capital asset like a business, stocks or real estate to the charitable organization, then you make no income on the sale and you get the full charitable donation up to 30% of your Adjusted Gross Income.
If you have any questions, comment blew.
You are welcome to share this article.
You are welcome to contact me via Social Media or email.
I will be happy to answer questions. You can also request a free consultation on any of the above or call me at 1 877 758 7797 or 6702 464 1818.
Also, if you are a minister or pastor or a lay minister, feel free to use this data to encourage your congregation to make donations..
You are welcome to post a link to this article on your website.
You are welcome to share this link with friends or your congregation.
You are welcome to refer your congregants to me for tax help or to answer their questions on taxes or charitable donations.
You are welcome to contact me personally for tax help. Many ministers overpay their own tax bill as they do not understand all the deductions they can take or that they are entitled to a tax-free ministerial housing deduction.
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