How 2021 Tax Changes Could Impact Your Donation
Year-end tax planning is upon us. Companies and individuals must use the next few valuable weeks to look at possible deductions, especially given the potential tax changes in 2021.
With two runoff elections in Georgia, there is still a lot unknown regarding who will control the Senate. However, if the Democrats are able to pass legislation through both the House and Senate without opposition, the likelihood of massive tax-code changes is certainly a possibility.
According to the Wall Street Journal, Biden has not yet released a detailed list of proposed tax changes but has made statements on the campaign trail that we can draw from. Whether these proposals move forward will remain to be seen. However, it is essential to be prepared.
Capital Gains Tax Changes
Biden has campaigned for a tax on capital gains on investments held at the time of a tax payer’s death. While this doesn’t correlate to charitable donations directly, it does call into question if Biden intends to keep the home seller’s exclusion of capital gains up to $250k for a single person and $500,000 for a couple. For homeowners looking to sell, buy, or flip a home, it is something to watch closely.
Biden has discussed his plans on the campaign trail to raise taxes for those with an income of $400,000 or higher. This increase would raise the top income rate from 37% to 39.6%. Deductions will become incredibly important for affected earners. However, taxpayers’ ability to deduct charitable donations (like those in deconstruction) could be impacted by further changes.
Limit the Value of Itemized Deductions
This is the most devastating change that could significantly impact your deduction in 2021. Under a Biden tax plan, the benefits of deductions of large charitable donations could be lowered considerably.
Currently, your income tax is symmetrical with a taxpayer’s top tax rate. For example, if a taxpayer’s rate is 37%, then deductions can provide a savings of 37 cents per dollar. However, under Biden, a taxpayer at the top income bracket would only see a savings of 28 cents per dollar. This can drastically reduce a potential deduction for those making more than $400,000 per year.
Because of the tax code’s uncertainty in 2021, it is vital that you take steps towards moving forward on a donation this year. By engaging with Green Donation Consultants and getting the process started, you can deduct your donation in 2020, even if the deconstruction doesn’t occur until next year.