While 2021 brought many new advancements—including widespread vaccine distribution and reopenings—the 2020 COVID-19 pandemic continued to wreak national chaos due to illness, inconsistent mitigation, increased inflation, and other financial uncertainty.
Nonprofit organizations struggled under the same circumstances. Charities often faced increased demand, while attempting to fundraise in uncertain times. A gala might be planned, then cancelled as cases rose; arts nonprofits suffered cancelled performance dates; staff or volunteers faced concerns over illness. Inconsistent giving complicated matters, according to various local and national reports. In the past two years, certain sectors suffered more, including small nonprofits, arts-based nonprofits, and urban-based nonprofits.
Many charities still need 2021 donations. Three out of four nonprofits see individual donations as “essential or very important for their work,” according to research by the Urban Institute. If you’ve remained financially stable, or charitable giving is important to you, any year-end donations could be critical to many struggling nonprofits.
Learn about the benefits of year-end giving—along with great ways to achieve your goals.
Why 2021 Was a Particularly Good Year for Charitable Donations
In light of needs generated by the still-ongoing COVID-19 pandemic, increased demand on charities, and a special tax provision that may disappear after this year, 2021 is a good year to donate.
The pandemic led to the March 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, which gave taxpayers the opportunity to deduct donations of up to $300 per adult or $600 per couple, filing jointly. The Act was originally set to expire in 2020, but December 2020’s Taxpayer Certainty and Disaster Tax Relief Act extended the deduction through the end of 2021.
In essence, individual taxpayers are permitted a $300 deduction ($600 if married filing jointly) for cash donations made by December 31, 2021 to qualifying organizations, without requiring itemizing. Cash contributions aren’t limited to actual cash, but also includes check, or credit or debit card donations, or unreimbursed out-of-pocket expenses from volunteer services with a qualifying charitable organization. However, cash contributions don’t include dropping off household items at Goodwill, nor the value of volunteer services, securities (stocks), or other property.
This provision makes the deduction accessible to the 90% of taxpayers who normally couldn’t benefit from a charitable donation, according to the IRS. As well, the $300 donation lowers your adjusted gross income (AGI) and taxable income.
Qualifying organizations must have charitable, educational, religious, literary, or scientific purpose—and be classified by the Internal Revenue Service (IRS) as tax-exempt.
Big-dollar donations are encouraged, too, by temporarily lifting the typical limit on deductions for those who itemize. Before 2020, donors could deduct donations on up to 60% adjusted gross income (AGI). In 2021, it’s possible to deduct cash contributions of up to 100% of AGI. If you wish to give away your entire year’s income, it’s possible to do so in 2021.
However, few will benefit from this temporary lift—mainly wealthy older adults with low annual incomes who aren’t dependent on their retirement funds.
The past several years’ erratic-yet-steady stock market growth may mean you can give more in appreciated assets.
Many states also offer tax deductions for charitable contributions, or have their own tax-related laws. Speak with a tax attorney or professional about your situation.
Reasons to Make Year-End Charitable Donations
Good reasons to give at year’s end include the following, ranging from financial advantages to personal satisfaction.
Take Advantage of Employer Matching
Some employers match charitable donations, although they may place dollar limits and deadlines on charitable matches, such as Dec. 31. You might be able to get a match even if you’re not currently an employee—many employers match donations given by an employee’s spouse or a retired employee.
Some companies match at rates of two or three times the amount given by an employee. Check with your HR department to find out your company’s rules and match rate.
Generate Tax Deductions
To count toward your 2021 taxes, you must make contributions by Dec. 31, 2021. In a standard year, people who choose to take the standard deduction cannot claim a deduction for their charitable contributions. But a special tax provision announced by the IRS now permits taxpayers to deduct up to $600 in donations to qualifying charities on their 2021 federal income tax return.
Give to Gift
Most organizations offer a way to give in honor of someone else. This can be a great way to take care of last-minute holiday gifts, especially for someone hard to shop for. However, it may be up to you to tell your honoree by card. Check with the site or charity to find out.
Some conservation organizations provide “symbolic adoptions” along with a certificate and plush toys, so there are physical (and wrappable) gifts, in addition to your monetary donation.
Offset IRA Taxes
To offset IRA taxes, one option is to give up to $100,000 from your IRA directly to a qualified nonprofit by Dec. 31. This is also called a qualified charitable distribution (QCD). Generally, a QCD is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity.
Speak with a tax or personal finance professional about the particulars of your situation, especially where taxes and retirement funds are concerned.
The Best Ways To Donate for Tax Purposes
The best way to donate depends on what you’re trying to achieve—whether it’s a quick gift or a larger tax deduction for your itemized 2021 return.
If You Don’t Itemize
Give cash before Dec. 31 to claim the $300 CARES Act deduction. Or you can donate appreciated stocks or other securities to an organization to potentially avoid paying capital gains on the appreciated amount. However, you can’t deduct the stock’s value from your taxes or claim the CARES deduction if you donate stocks.
Before giving, research your charity’s governance with a site like Charity Navigator.
If You Do Itemize
If you plan to itemize, you can donate mutual funds, cash, or other items before Dec. 31 to qualified charities.
“As stock values have gone up, now may be a good time to donate if you have a legacy stock holding that has appreciated in value,” explained Roger Ma, a New York City-based founder and financial planner at lifelaidout and author of “Work Your Money, Not Your Life.”
“You can donate the security and get the stock’s full value as a tax deduction, without paying capital gains,” he says.
Or, you may be interested in more sophisticated ways of donating that pair tax benefits with the satisfaction of giving to causes important to you.
For example, a donor-advised fund (DAF) could be a good fit if you’re charitably inclined, itemize deductions already, and are in a high tax bracket, according to Ma. A DAF is like a charitable investment account, and can be a tax-efficient way to manage appreciated assets and larger contributions. You could also give assets like stocks, bonds, and restricted stock from your employer to the DAF.
According to the IRS, once the donor makes a DAF contribution, the organization itself has legal control over it. However, the donor, or their representative, maintains advisory privileges in regards to the distribution of funds and the investment of assets in the account.
Beyond cash and securities, you can give household items, too—if you itemize the used goods you give away, Goodwill’s guide to estimated values can help.
Donating used items keeps them out of the waste stream and provides usable items for people on a budget—which could be especially valuable this year.
Depending on your contribution, you may need a receipt from the receiving organization or need to fill out a special tax form. Check with your tax preparer for more information.
The Bottom Line
Giving is a good idea for a number of reasons, especially in 2021. In addition to effectively spreading the wealth, you can improve your own circumstances and sense of well-being by benefiting from special tax deductions and clearing your space. It’s a generous way to embark on the new year with the right financial footing.
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