The CARES Act and Charitable Giving
The CARES Act and
Charitable Giving
In most normal years, the weeks between Thanksgiving and Christmas are the most productive for non-profit fundraising. Through a combination of a seasonal burst of goodwill and the realization that the tax year is coming to a close, many people pause to take a close look at where they might be able to stretch their dollars a little farther to both gain an extra tax break for themselves and help causes that are near and dear to them.
It’s already been well established that 2020 is anything but a normal year.
Along with many other changes we never fathomed, 2020 brought with it the Coronavirus Aid, Relief, and Economic Security (CARES) Act. And with the CARES Act comes some real opportunities for taxpayers to get a break while supporting their favorite charities and for charities to market fundraising opportunities even through an economic downturn.
Flint Avenue Marketing recently met with Doug Mitchell, JD, LLM, Principal at K-Coe Isom, the nation’s leading Food & Ag consulting and accounting firm, to learn more about helping non-profits use marketing to support their donors. Doug is an attorney with a master’s degree in tax law who is well-versed in the details of the Charitable Contributions portion of the CARES Act so that he can best advise his clients on how to garner the most from tax benefits that are unique for 2020.
What is the CARES Act?
Put simply, the CARES Act is the US government’s reaction to Covid-19. It was intended to provide “fast and direct economic assistance for American workers, families, and small businesses, and preserve jobs for our American industries.” The overall purpose of the act is to help Americans get through this year financially. By now, we’ve all heard of the SBA loans, Paycheck Protection Program (PPP), and other aspects of the CARES Act, but there are other parts that haven’t received quite as much attention.
The Charitable Contributions portion of the CARES Act is designed to help charities continue to receive funds and possibly even increase giving this year. Since not everyone is able to give charitable gifts as they normally do this year, the CARES Act added a few benefits to encourage those who can give to do so generously. This affords opportunities on both sides:
- Donors can really maximize their charitable giving to their favorite charitable organizations exempt from tax under the tax code and gain significant tax benefits.
- If marketed properly, charities should actually be able to see an increase in giving this year.
How the CARES Act Benefits Donors
The Charitable Contributions portion of the CARES Act provides several parts that enable donors to reap benefits of added generosity in 2020*:
- Standard Deductions: If you take the standard deduction, you typically have not been able to deduct charitable contributions. However, the CARES Act states that those who take the standard deduction can now include up to $300 in charitable donations for single filers or $600 for joint filers. This is an “above-the-line,” straight deduction and does not get reported on the Schedule A with itemized deductions. Unlike the other items discussed below, this is a permanent change to the tax code.
- Cash Gifts: There is no AGI-based cap on qualified cash donations made in 2020. For those who itemize deductions, the adjusted gross income (AGI) limit for cash contributions (“qualified contributions”) was increased to 100% for 2020 for individual donors, up from a 60% limit in recent years. This means individuals might be able to “zero out” all 2020 tax liability and then carry forward excess contributions beyond their 2020 AGI to offset tax liability for the next five years using the carryover rule.
- Qualified Charitable Distributions (QCD): QCDs allow individuals over 70½ years of age to donate up to $100,000 in IRA assets directly to a charity each year without taking the distribution as excess income. Nothing has changed with this rule for 2020. However, since the CARES Act allows individuals to deduct 100% of their AGI for charitable contributions, this means that people over age 59½ can receive similar benefits. By taking a cash distribution from their IRA and contributing it to charity, these individuals might offset the taxes on the distribution completely. Therefore, for someone planning a large donation for 2020 who is between the ages of 59½ and 70½ and is not dependent on existing retirement funds, this could be a smart tax strategy.
- Corporate Donations:
C Corporations—In a normal year, C corps can only deduct 10% of their taxable income for charitable donations. Under the Charitable Contributions portion of the CARES Act, they can deduct 25% in 2020. Furthermore, they can still use the carryover rule for up to five subsequent tax years for donations above the 25% threshold. Finally, employer contributions to employer-sponsored disaster relief funds hosted by community foundations and similar public charities can also be listed as Qualified Contributions eligible for the 25% limit.
S Corporations—Non-profit cash donations made in 2020 will be pass-through deductions to the individual shareholder’s personal income taxes, thereby allowing the 100 percent deduction to be allowed, as described under “Cash Gifts” above - Food Inventory: This portion is particularly exciting for the agricultural space. Food inventory deductions are normally limited and complicated. Under normal circumstances, the deduction is limited to the lower of (1) the taxpayer’s basis in the property plus one-half of the gain the taxpayer would have realized on the sale of such inventory or; (2) twice the taxpayer’s basis. For 2020, however, the deduction limitation is increased to 25% of a taxpayer’s aggregate net income from any businesses from which the food inventory contributions were made. For a C corp, this would be 25% of taxable income. The idea behind this change is to get food to people who need it. It’s also a good way for companies, such as restaurants, who find themselves with an overstock of food to get rid of it without wasting it. There is a caveat, however. A restaurant cannot just donate food to a homeless shelter (for example) and write it off. The donation must be made through a qualified food charity that has been vetted and approved by the government.
How Non-Profits Can Use Marketing to Maximize 2020 Giving
According to Doug, there are several ways qualified charities can market to their donor base to maximize, and even increase, 2020 giving:
- Charities should be sure the information above gets in front of their donor base in multiple formats from now through the end of the year using multiple donor communication avenues: newsletter, website, board meetings, social media, and so on. In marketing we know that repetition is the key to getting the message across. Everyone has information flying at them from all directions these days, and sometimes it takes hearing or seeing the information a few times for the message to break through the other noise.
- Charities can also approach businesses to be sure they know they can deduct 25% of contributions this year. The 10% cap in previous years might have made it not worth the effort for businesses to donate to your non-profit but knowing that number has increased to 25% for 2020 might make them take another look.
- Food banks can reach out and let potential food donors know that this is a great year to make that food donation and benefit on their taxes.
While most people wait until closer to the end of the year to focus on charitable giving, the CARES Act has changed the rules for 2020, and Doug says he’s already had an increase in clients asking him how to use the CARES Act to maximize their giving and tax benefits. This means it’s a great time for charities to get out there and start marketing this information to increase 2020 donations. If you work for a charity and need assistance with this type of marketing, Flint Avenue Marketing is always here to help.
*The information in this article is provided for informational purposes only and is not intended to be used as tax advice. Contact a tax attorney, CPA, financial advisor, or other tax or financial professional for details on how best to take advantage of these unique charitable giving opportunities for your specific financial situation.
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