Late last year congress extended and expanded the universal charitable tax deduction that became law as part of the CARES Act. This deduction now allows individual taxpayers to deduct up to $300 and couples filing jointly and married to deduct up to $600 in charitable contributions made in 2021. For many people, this restores the deduction for charitable contributions they benefitted from prior to the 2017 Tax Cut and Jobs Act (TCJA).To qualify, charitable donations must be: 1) in cash, not property (a “cash” donation includes money contributed by cash, check, credit card, electronic funds transfer, or payroll deduction), and 2) given to a 501(c)(3) nonprofit, charitable organization, such as a religious organization like your local church, the SNEUCC, and/or the national setting of the UCC.
Importantly, this universal deduction is used to calculate one’s Adjusted Gross Income (AGI), so taxpayers don’t have to itemize their deduction on Schedule A to claim it. Instead, taxpayers can simply enter their qualifying amount on line 10b on page 1 of their Form 1040, then deduct it from their gross income.
There is no requirement that taxpayers provide any documentation for their contributions with their tax returns. However, the IRS does require that taxpayers keep a written record of the cash contributions. For cash donations under $250, donors can use a bank record or other documentation that substantiates the payment. For cash donations above $250, the donor must have a document or timely receipt from the charity, for example, the church.
Because of the TCJA, it is estimated that approximately 90% of Americans now choose to take the standard deduction instead of itemizing, and thereby are unable to deduct their charitable contributions. While tax deductibility is generally not the primary reason why people make charitable contributions and/or how much they give, it can be a consideration.
Item #3 in the Taxpayer Bill of Rights states, “Taxpayers have the right to pay only the amount of tax legally due…” With this extension and expansion of the universal charitable deduction, individuals filing a tax return for 2021 have a right to claim up to $300 ($600 for a couple filing married and joint) in charitable contributions they make, including those made to the church, and thus reduce their taxable income.
I urge our churches to inform their members and friends of this tax change so that they can avail themselves of it when they file their 2021 tax return. Although there is legislation pending to both expand and extend this universal charitable deduction, its future is unclear. Hence, this may be the last year it is available.
Reminder: In Tax Laws and Giving to Your Church, I wrote about a tax-wise way for people to financially support their local church, the Southern New England Conference, the national setting of the UCC, or any nonprofit organization for that matter, by making a Qualified Charitable Distribution (QCD) from their Individual Retirement Account (IRA). People can also make gifts of Appreciated Stock. While I've posted a brochure explaining this on our Planned Giving webpage, gifts of appreciated stock can also be used for annual giving and capital campaign giving.
Rev. Dr. David Cleaver-Bartholomew is the Director of Stewardship and Donor Relations for the SNEUCC.