Can i take standard deduction and charitable donations

If you're one of the millions of Americans who gave to charity in 2021, you can still claim a write-off on this year's tax return. 

There's a deduction for cash gifts up to $300 for single filers and couples filing jointly may score up to $600, according to the IRS.

And it's easier for more filers to qualify for the 2021 charitable tax break, financial experts say. Here's why.

Introduced as part of the CARES Act of 2020, Congress provided charities a boost by offering an incentive for Americans to make cash gifts. Lawmakers extended the write-off for 2021.

"This is a unique opportunity to take advantage of a temporary tax benefit," said Juan Ros, certified financial planner at Forum Financial Management in Thousand Oaks, California.

The charitable write-off isn't "above-the-line," so it won't affect adjusted gross income. But it's not an itemized deduction, either.

With nearly 90% of filers using the standard deduction, it can be difficult for the average American to claim tax breaks for smaller charitable gifts since they must itemize to receive the benefit.

However, the temporary law allows those taking the standard deduction of $12,550 for single filers or $25,100 for married taxpayers to qualify in 2021.

"This means anyone can deduct a cash contribution to a qualifying charitable organization even if the taxpayer is unable to itemize deductions," said David Haas, a CFP and president of Cereus Financial Advisors in Franklin Lakes, New Jersey.

The cash gift, including payments by check, credit card or debit card, must have gone to a qualified charity. Transfers to a donor-advised fund or private foundation won't count.

Bigger tax breaks

While the tax breaks up to $300 or $600 are a perk for many filers for 2021, those who itemize deductions may get a bigger write-off by gifting other types of assets in 2022.

For example, if someone has appreciated stocks or other investments held for more than one year in their taxable portfolio, they may consider transferring those assets to charity.

Here's why: The donation may avoid capital gains taxes of 0%, 15% or 20% for 2022, depending on income. To make it work, investors must give the assets directly to the organization rather than selling and donating the proceeds.

"This is an excellent opportunity for someone who has invested in an asset that has performed well and wants to diversify their holdings but doesn't want the capital gains hit," said Danielle Harrison, a CFP, fee-only financial planner and founder of Harrison Financial Planning in Columbia, Missouri.

Of course, there are many factors to consider, and a tax professional may provide guidance for the optimal strategy.

This Giving Tuesday, don't forget to keep track of your donation receipts.

That's because individuals can write off up to $300 in cash donations, and up to $600 for married couples filing jointly, made to qualifying charities in 2021, regardless of if they take the standard deduction or itemize their taxes. Typically, only those that do the latter can write off donations, but Covid-era laws changed that for 2020 and 2021.

The tax change alone isn't a reason to give more this year, but it is good news for the estimated 90% of households that take the standard deduction each year.

However, for donations to count as a tax deduction, there are a few requirements.

First, they must be made to eligible organizations. You can use this tool on the IRS's website to quickly see if the organization you want to donate to qualifies. That said, not every qualifying organization is listed there. You can also look on many organizations' websites for a determination letter from the IRS.

Keep in mind that donations made to individuals are not tax-deductible. So if you gave to a GoFundMe campaign that wasn't linked to a charity, it likely does not qualify (that's no reason not to give, of course).

Second, the donations must be made in cash (including by check, credit card or debit card), and you'll need the receipts. Volunteering, or donating household items or other property does not count.

Let's say a married couple with an effective tax rate of 25% jointly donated $750 throughout the year. If they take the standard deduction, they'd be able to deduct the full $600, lowering their federal tax liability by $150.

There's one other important change to individual charitable giving this year. Those who itemize typically can write offup to 60% of their adjusted gross income for qualifying cash contributions. This year, they can write off 100%.

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