3 Tax Advantages of Charitable Giving To Make Use of Before the End of 2021
Here are some ways to maximize your taxable deductions before the end of the year and make sure you’re getting the most out of your taxes.
1. Deduct Charitable Donations — Even If You Don’t Itemize
In the past, you were only able to claim a charitable donation on your taxes if you itemized your deductions. However, with the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act, you are now allowed to deduct $300 ($600 married filing jointly) for monetary charitable contributions — even if you do not itemize any deductions.
Only cash donations qualify, though, meaning physical item donations will not count.
Important to note: This only applies to 2021 taxes. The CARES Act was placed into effect to help relieve financial pressures that came as a result of the pandemic. Thus, this benefit is only available for 2021. The amount you can claim also does not make a big enough dent to affect tax brackets, but certainly helps.
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2. Itemize Instead of Claiming Standard Deductions
If you are able to itemize instead of claiming the standard deduction, make sure you don’t miss out on this super valuable strategy. The IRS says that about 75% of taxpayers take the standard deduction, but could easily be missing out on valuable deductions if they are able to itemize.
Should your qualifying expenses exceed $12,500 (the 2021 limit for singles) or $25,100 married filing jointly, then you should probably maximize your deductions and itemize.
If you believe you should be itemizing, then your year-end strategy should involve something called bunching. This means timing expenses to produce “lean” and fat” years, according to TurboTax. During a fat year, you essentially cram as many deductible expenses as possible into one year, with the goal of surpassing the standard-deduction amount and claiming a larger write-off. In the lean years, year-end planning stresses pushing as many deductible expenses as possible into the following year when they’ll have more value.
3. Sell Losing Investments To Offset Gains
This tried-and-true year-end practice allows you to sell off investments that have not been performing well in order to minimize the amount of taxable gains on other investments that did well for you. In a year where the stock market has soared, this is particularly important. The catch is that you will have to sell the actual investment to officially realize the loss.
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