Stelter’s Senior Gift Planning Consultant, Lynn Gaumer, J.D., is back to share an update on the new CARES (Coronavirus Aid, Relief, and Economic Security) Act as it relates to the nonprofit sector.
The president has signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This is designed to help taxpayers, businesses and nonprofits facing economic hardship in the wake of the coronavirus pandemic and economic downturn.
Here are several key provisions of the CARES Act that relate to the nonprofit sector:
Suspension of Required Minimum Distributions (and Impact on QCDs)
The new law temporarily suspends the requirements for required minimum distributions (RMD) for the 2020 tax year. This probably comes as a relief to many retirees who would have had to withdraw a greater percentage of their retirement accounts than expected or face a penalty, given that their RMD calculation for 2020 is based on the retirement account balance as of Dec. 31, 2019.
But how will this impact qualified charitable distributions (QCD)? Many individuals use their RMDs to make QCDs. The suspension of the RMD, along with a drop in the stock market, could result in fewer gifts from IRAs this year. Perhaps this can be offset with some new tax incentives allowed under the new law.
New Tax Incentives for People to Give to Charity
- Creation of a universal charitable deduction—albeit a limited one of $300
- Lifting of the cap on annual contributions for those who itemize
Creation of Universal Charitable Deduction
The universal charitable deduction is an above-the-line deduction and will be available to taxpayers who take the standard deduction. This tax incentive is available for gifts to qualified charities (and not to donor advised funds).
Example: A taxpayer who takes the standard deduction and makes a $300 cash gift to a public charity in 2020 may claim the $300 deduction in computing his or her adjusted gross income. The deduction is in addition to the taxpayer’s standard deduction.
I have advocated on Capitol Hill for the universal charitable deduction and met with congressional leaders on behalf of the nonprofit sector. I am glad to finally see it become law—even for a small amount. I hope that the CARES Act sets a precedent to make this a permanent provision of our tax code and expand it to a higher cap or, better yet, no cap at all.
Lifting of Cap on Annual Contributions
Contributions to public charities are generally limited to a percentage of a taxpayer’s adjusted gross income (AGI). The new law lifts the cap on annual contributions for those who itemize, increasing it from 60% to 100% of AGI for 2020. Any excess contributions available can be carried over to the next five years. For corporations, the new law raises the annual limit from 10% to 25% of taxable income.
Loans to Nonprofits
Loans of up to $10 million are available for eligible nonprofits with 500 or fewer employees. Nonprofits are also eligible for expedited loans of up to $1 million. The money must be used for salaries and other associated expenses such as health care premiums. Nonprofits that keep their employees on the payroll through June 30 are eligible to have their loans forgiven, essentially turning the loan into a grant.
Consider a new mini campaign, with a goal of 100% participation, in which each of your donors uses his or her $300 tax-deductible contribution to benefit your organization. The impact can be even greater if a donor’s company matches the gift. Follow up with an impact story via email or highlight the total giving numbers (both in number of donors and dollar amount) on social media to show how even a small gift can make a big difference.
During these unprecedented times, it is difficult to determine what’s next. But it is critical that your organization stays top of mind. Messaging remains important. Show your human side.
Take time to review and revise your messaging to show empathy about the current situation. It is also a great time to review your materials for any technical changes. For example, many organizations promote using an individual’s RMD to make QCDs. With the suspension of RMD in 2020, these materials will need to be updated.
Reach out to your donors and let them know about the new tax incentives for giving in 2020.
Stelter Is Here to Help
To help you get started, we have created a sample letter you can customize and send to your donors.
Access our sample copy by clicking on the link below.
Want to learn more about how the industry is responding in these times of uncertainty?
Join Nathan Stelter as he addresses questions and concerns of fundraisers like you around the country and shares some ideas on how Stelter is tackling them, helping to put you, your organization and your donors in the best position for success. View the short video here.