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The CARES Act provided for expanded deductibility of charitable contributions to encourage taxpayers to give to charities during 2020. In December 2020, the Taxpayer Certainty and Disaster Tax Relief Act (TCDTR) was enacted which expanded and extended many of these provisions into 2021 to incentivize continued charitable giving through the end of 2021.
The expanded benefits allow individuals who elect to take the standard deduction and ordinarily do not qualify for charitable contribution deductions, to deduct up to $300 ($600 for married taxpayers filing joint returns) for cash donations to qualified public charities.
For individual taxpayers that itemize their deductions, the expanded benefits increase the deduction limitation, ordinarily limited to up to 60% of the taxpayer’s adjusted gross income (AGI), up to 100% of AGI so long as the charitable contributions are made in cash to qualified public charities during 2021. If excess contributions are made over the 100% limit, the donor may carry these excess deductions forward for up to five subsequent tax years, however the enhanced deductibility is set to expire after 2021.
Corporate taxpayers also saw an increase in deduction limits from the ordinary limitation of up to 10% of taxable income to 25%.
Additionally, businesses donating food inventory for the care of the ill, needy, and infants may qualify for an increase in deduction limits from 15% to 25% of income providing the ordinary food inventory donation qualifications, standards, and other requirements are met. The 25% limit for C corporations is based on taxable income, whereas the 25% limit for other businesses such as partnerships, S corporations, and sole proprietorships, is based on their aggregate net income for the year.
For a description of recordkeeping rules for substantiating gifts to charity as well as details on the percentage limits and qualifying charity rules, see IRS Publication 526, Charitable Contributions.