Everyone is learning and adjusting during this COVID-19 pandemic because every day is different, requiring us to live, work, and play in ways we had not before. As the world feels the economic challenges of the COVID-19 crisis, there are new challenges that are arising for nonprofit organizations, especially with maintaining donor involvement. While this may be challenging, it is important to know the enhanced charitable giving incentives brought forward with the CARES Act (Coronavirus Aid, Relief, and Economic Security) passed by Congress.
These four incentives are as follows:
$300 Cash Contribution Deduction
This incentive allows for taxpayers to make a $300 gift to a charitable organization that is directly deductible from their gross income (above the line deduction). This deduction is for cash gifts and does not cover other types of gifts or contributions (stock, real estate, i.e.) made to donor-advised funds or private foundations. Potential fundraising efforts could focus on new donors looking to utilize these incentives for tax-deductible purposes.
Enhanced Charitable Contribution Limits for Individuals
This incentive suspends the 60% adjusted gross income limitation for individuals’ charitable contributions for the year 2020. In a typical year, individuals can only take a charitable deduction of up to 60% of their adjusted gross income, no matter how much they give. For 2020, there is no limit, making cash contributions fully deductible on the individual donors’ tax return. Nonprofits could implement focused initiatives to target large donors who may give more due to the increase in limitations this act brought.
Enhanced Charitable Contribution Limits for Corporations
This incentive increases the corporate cap on charitable gifts from 10% to 25% of taxable income. In addition, the limitation on deductions for food donations by corporations increases from 15% to 25% in 2020, therefore allowing corporations to contribute more with tax benefits to them. Organizations could concentrate appeals to new and current corporate donors looking to take advantage of the increase in deductible contributions.
Required Minimum Distribution Waiver From Retirement Plans
This incentive waives any minimum distributions that would have been required from retirement plans in 2020 until 2021. This incentive, unfortunately, reduces the incentive for donors to make gifts from their individual retirement account.
Understanding the incentives that are available to your potential donors from the CARES Act can be crucial to enticing donors to maintain their current giving status or even consider donating for the very first time. In these uncertain times getting funding to meet your budget can be difficult, but utilizing these four incentives to organize your fundraising efforts could aid in generating further support from the public. To learn more about successful fundraising in uncertain times, check out our article here.
Benjamin Winters, CPA, and Senior Assurance Associate at TDT discusses developing a Liquidity Policy. With four years of experience, Ben specializes in audits of nonprofits, governmental entities, and employee benefit plans. Ben is a member of the American Institute of Certified Public Accountants and the Iowa Society of CPAs and serves nonprofit clients across all nine TDT office locations.