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THE 2017 TAX CUTS and Jobs Act doubled the standard deduction. It’s estimated that 90% of households took the standard deduction in 2018, rather than itemizing, up from 69% in 2017.
The tax-code overhaul essentially means it costs more to donate to your favorite qualifying charities—unless you’re among the 10% whose itemized deductions exceed their standard deduction. To be sure, we shouldn’t give to charity solely for the potential tax benefit. Even if you itemize and hence you can deduct your gift, you’ll still be out of pocket.
That said, for those of us who claim the standard deduction, there is an added financial incentive to give in 2021. If you make a $300 cash donation by Dec. 31, you can take a deduction on your tax return—even if you don’t itemize. A similar write-off was put in place by the CARES Act for the 2020 tax year.
Say you’re in the 22% marginal tax bracket. A $300 charitable contribution means you’ll save $66 in taxes. Nobody’s going to retire on that windfall. But perhaps you can use it as an excuse to enjoy a (thrifty) date night. Alternatively, you might add the amount of the tax break to your donation, so you give even more to your favorite nonprofit.
Some additional good news: If you’re married filing jointly, you can get double the deduction with a $600 donation. That’s an increase from last year, when couples were limited to $300.
QCD’s also serve to reduce your adjusted gross income. If you are close to one of the Medicare IRMAA break points making a QCD instead of a taxable distribution may keep you from paying a premium surcharge. One interesting bit of tax trivia – making a QCD is not reflected on your annual 1099-R. Be sure you input the QCD amount in your tax software if you self prepare or give the QCD documentation to your preparer. The letters QCD should appear to the left of taxable IRA box on your 1040 and the QCD amount should be excluded from the taxable amount. Mytime totravel is correct, you need to understand the tax rules to get the tax benefit.
Also, if you’re old enough to be taking RMDs, you can take QCDs – Qualified Charitable Distributions – which are subtracted from the RMD. Check the rules first, they are quite strict.
Mike, thanks for the head up. I thought last year it was odd that the deduction amount didn’t double for married filing jointly, so glad to learn they’ve fixed that.
Good to know. Thanks!