Charitable Giving Offers Expanded Tax Benefits

Businesses and individuals that make charitable contributions by the end of the year are eligible for expanded federal tax benefits. 

The Internal Revenue Services notes that the Taxpayer Certainty and Disaster Tax Relief Act of 2020 extends some changes enacted by the Coronavirus Aid, Relief, and Economic Security Act through the end of 2021. 

Under the law, C Corporations can apply an increased corporate limit of 25% of taxable income for all charitable cash contributions. 

That applies to any eligible charity during the 2021 calendar year and is 15% more than the maximum allowed deduction in previous years, according to the IRS.

C Corporations should choose the ‘Increased Corporate Limit’ on a contribution-by-contribution basis. 

Donated Food Deductions

Businesses that donated to food inventory also might be eligible for increased deduction limits for 2021.

The deduction limit has increased to 25% for contributions made during the 2021 calendar year. 

Businesses that qualify are those eligible for existing enhanced deductions, specifically businesses who made contributions to caring for the sick, needy and infants.

The limit is based on taxable income for C Corporations. 

Other businesses, including sole proprietorships, partnerships and S corporations, will have a limit based on aggregate new income for the year from all trades or businesses from where the contributions are made.

What to Remember

There will still be a special method for calculating the enhanced deduction, food quality standards, and other requirements. 

There are special recordkeeping rules for businesses claiming charitable contribution deductions. 

Businesses will need a letter from the charity acknowledging the contribution before they can file a return. They should also have a cancelled check or credit card receipt if there is a cash contribution. 

Property donations have further rules for recordkeeping.