The CARES (Coronavirus Aid, Relief and Economic Security) Act, signed into law on March 27, 2020, has provided economic relief to businesses and individuals affected by the COVID-19 pandemic. A couple key provisions of the CARES Act were extended into the new year (and, in one case, increased). Here's what the new stimulus package means for you in 2021.
*Before acting on any of the provisions highlighted here, please consider discussing them with your professional advisors to determine their applicability to your individual tax situation.
Tax Incentives When You Give to Charity
1. An expansion of the universal charitable deduction for cash gifts
The universal charitable deduction has not only been extended but given a well-deserved upgrade. The new deduction is $300 for single filers and $600 for married couples filing jointly. This is available to taxpayers who take the standard deduction. This tax incentive is available for cash gifts to qualified charities (but not to supporting organizations or donor-advised funds).
2. An extension of the cap on deductions for cash contributions
Contributions to public charities are generally limited to a percentage of a taxpayer's adjusted gross income (AGI). The CARES Act lifted the cap on annual contributions for those who itemize, increasing it from 60% to 100% of AGI for 2020 (and now for 2021). Any excess contributions available can be carried over to the next five years. (For corporations, the law raised the annual limit from 10% to 25% of taxable income).
3. Economic Impact Payments
If you're receiving a payment through the Amerian Rescue Plan and your situation allows, consider taking advantage of the allowed charitable deduction by making a gift to UNH’s Student Emergency Assistance Fund or any other fund of your choice from this payment.
4. Charitable IRA Distributions
Required minimum distributions (RMDs) must be taken each year beginning the year your turn age 72 (70 ½ if you turned 70 ½ in 2019). If you do not need some or all of the income, you can use it to make a charitable gift.
-At age 70 ½ and older, you can give any amount up to $100,000, penalty-free, without having to pay income taxes.
-At age 59 ½ and older, you can take a distribution up to $100,00 to use as a gift without penalty and you can take your gift as a charitable deduction.