The Pentera Blog
Five Ways the New CARES Act May Affect Your Donors’ Gift Planning
The new stimulus package known as the CARES Act contains certain provisions beneficial to donors—in recognition of the fact that many charities’ fundraising efforts are impeded at the very time there is a tremendous need for services due to the coronavirus pandemic. Other provisions of the Act, while not directly applicable to charities, provide some gift-planning opportunities.
The Act, officially named the Coronavirus Aid, Relief, and Economic Security Act, is designed to rescue the economy from the effects of the pandemic. It was passed by Congress and signed into law by the president on March 27, 2020. The Act not only funds various health care needs but also provides financial relief for businesses, individuals, and institutions hit hard by the pandemic.
Here is a summary of the provisions affecting charities so that you can keep your donors informed and assist them in planning during this unusual and difficult year.
1. New Charitable Deduction Available for Non-Itemizers
Under the CARES Act, taxpayers who do not itemize their deductions will be able to claim a charitable deduction of up to $300 for cash donations made in 2020. This means that they could add an additional $300 to their charity budget this year, recover a portion of it in tax savings, and help charities address extraordinary current needs.
2. Waiver of Retirement-Plan Penalties for Purposes Related to the Coronavirus
Donors under the age of 59½ who withdraw money from a retirement plan to cover expenses incurred by the donor or a family member related to treatment of the coronavirus do not have to pay the 10% tax penalty for early withdrawal. In addition, taxation of the distribution can be spread over three years, and the donor can add the withdrawn amount to the fund later without regard to contribution limits.
This does not affect charities in the near term, but it does allow retirement funds to be used for an immediate need while enabling retirement accounts to recover and be used in the future for family security or charitable purposes.
3. Charitable Deduction Limits Modified for Individuals in 2020
Donors who made a large cash gift in 2019 could deduct it only to the extent of 60% of adjusted gross income. This year, the CARES Act allows donors to deduct it to the extent of their entire adjusted gross income.
Like the $300 deduction for non-itemizers, the modification of the contribution limit does not apply in the case of gifts for donor-advised funds and supporting organizations. The gifts in most cases must be to public charities.
In the event donors have made a multi-year pledge, they might want to accelerate payment of the pledge balance in 2020 if they can afford to do so. The donors would be able to use the deduction more quickly.
4. Increased Charitable Deduction Limits for Corporations in 2020
The contribution limit for corporations has been 10% of taxable income. For 2020, that limit has been raised to 25% for cash contributions. The purpose is to enable companies that are doing well in this economy to give more to their communities.
The Act also increases from 15% to 25% the percentage of taxable income certain corporations claim when they contribute food inventory for the needy. This may help replenish depleted food inventories at food banks.
5. Required Minimum Distributions Waived in 2020
Under the SECURE Act that was enacted this past December, IRA owners and certain participants in qualified retirement plans are required to take distributions beginning at the age of 72. The mandatory beginning age had been 70½. Under the CARES Act, for the year 2020 there will be no mandatory distributions—no matter the age of the account owner.
Many donors have seen a precipitous drop in the balances of their retirement funds, and this provision allows those accounts to recover before forcing the liquidation of possibly depressed securities they may hold in order to make required distributions.
The minimum age for making a tax-free transfer from an IRA to a charity remains at 70½, and the annual limit for such transfers remains at $100,000. However, because of the modification of contribution limits in 2020, donors could effectively exceed this limit with a deduction that offsets a taxable distribution.
Suggest That Your Donors Contact You and Their Advisors
The CARES Act is several hundred pages long and includes numerous provisions that could benefit donors financially. We recommend that you suggest that they consult their advisors about these provisions and contact you for help with any gift-planning opportunities.
