The recent CARES Act provided some additional relief for not-for-profit organizations that may be facing significant hardships due to the COVID-19 pandemic. Relief comes in the form of Paycheck Protection Program (PPP) loans, expanded eligibility for emergency disaster loans, and payroll-related credits and tax deferrals. One area that may not be getting as much attention is the change made in the area of charitable contributions and giving. These subtle changes could possibly have a big impact on your organization. During turbulent times, some people naturally want to give more and might voluntarily increase their charitable giving, while others might be motivated to contribute for the first time.
Opportunities for Small Individual Donors
We want to look at a small change that could possibly impact a lot more individuals. It may not be a lot of money, but in the overall picture it might just add up. Currently, only individuals who itemize can claim a charitable deduction. Under the CARES Act, an eligible individual may take a qualified charitable contribution deduction of up to $300 against their adjusted gross income (AGI) in 2020. An eligible individual is any individual taxpayer who does not elect to itemize his or her deductions. The provision applies to cash contributions only. This transition may motivate some smaller contributors into starting a life of giving.
Opportunities for Large Individual and Corporate Donors
In addition to the small giver, the CARES Act makes some changes that will give some larger contributors the opportunity to donate even more and deduct the whole amount. As some of you know, both individuals and corporations have a limit on the amount of charitable contributions that can be deducted in any one given year. Of course, it does not limit the amount of the contributions, just the amount that can be deducted in any given year. For individuals, the CARES Act increases the existing limit on annual giving from 60% of Adjusted Gross Income (AGI) to 100%. In addition, for corporations that have donations, the CARES Act raises the limit from the current 10% of taxable income to 25%. Keep in mind, any excess contributions above the annual limits can be carried forward and deducted in future years and are subject to the same rules.
Additional Opportunities for Corporate Donors
In addition to these provisions, corporations have a cap on the amount of food donations that they could deduct in any one year. This limit has also been increased to 25% of taxable income, which is up from the current 15% limit.
Not-for-Profit Organization Considerations
These changes may motivate some donors to give more charitable contributions in the coming years, or maybe even for the very first time, which will directly benefit most not-for-profit organizations. These are just a few items that not-for-profits and their donors should consider as part of their annual revenue/giving programs. Some other things to consider would be planned giving programs, donations of non-cash items (stocks, real estate, and automobiles, etc.), using minimum required distributions (MRDs) from Individual Retirement Accounts to give directly to charitable organizations, and many others.
An impactful program designed around these new provisions in the CARES Act, will not only help not-for-profits raise additional funds during challenging times, but will tend to keep donors invested in your organization while benefiting your local community at the same time. If you have any questions on this or any other related issue, please contact your CRI professional.