The CARES Act: Charitable Giving Incentives
April 9, 2020
By George Dulgeryan and Carí Jackson Lewis, CCF Senior Development Officers
and William Strickland, CCF Planned Giving Officer
The adverse public health and economic consequences of the novel coronavirus disease, COVID-19, are substantial and still evolving. More than ever, the California Community Foundation (“CCF”) and our nonprofit partners are on the front line, working hard to continue to serve the needs of Los Angeles’ most vulnerable residents. In acknowledgement of the essential role that nonprofit organizations play during the COVID-19 outbreak and, in addition to providing financial relief for individuals, businesses, charities, hospitals, and schools, the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) passed on March 27, 2020, also provides individuals and corporations with tax incentives for charitable giving. The full text of the CARES Act is available here.
While the below-referenced tax incentives generally do not apply to supporting organizations or donor advised funds, individuals and corporations will be able to realize the enhanced tax benefits provided in the CARES Act by making cash and food contributions directly to public charities during the 2020 tax year. The following is a summary of the provisions relating to charitable giving included in the CARES Act.
1. Universal Charitable Deduction: The CARES Act includes provisions that allow eligible taxpayers a partial above-the-line deduction of up to $300 in gifts made to public charities for tax year 2020. Eligible taxpayers are individuals who do not itemize their deductions, allowing those taxpayers a tax benefit that they would otherwise not receive for supporting nonprofits. The deduction is limited to cash gifts only. Unfortunately, the deduction is not allowed for gifts made to supporting organizations or to establish or maintain donor advised funds; however, the deduction is likely allowed for gifts made to other funds commonly administered by community foundations, such as the CCF COVID-19 LA County Response Fund.
The COVID-19 LA County Response Fund (“Fund”) was launched on March 13, 2020 and serves to address the immediate and emerging needs of our region’s most impacted residents—from mitigation to eventual recovery. This Fund supports community needs identified by our nonprofit partners in health, housing, education, and immigration through our Pass It Along Fund. As of March 24, 2020, this Fund has granted $1.7 million to address the immediate needs of impacted residents, including youth, homeless, immigrants, uninsured and under-insured individuals. CCF has waived its administration fee to manage the Fund (credit card contributions remain subject to third party fees).
2. Increased Deduction Cap for Individuals: Individuals that make gifts of cash to nonprofits in tax year 2020 are allowed a deduction of up to 100% of their adjusted gross income. This increased deductibility cap applies to cash gifts to both public charities (which was previously limited to 60% of adjusted gross income) and private foundations (which was previously limited to 30% of adjusted gross income). This increase in limitation is for cash gifts only. Gifts in excess of 100% of the taxpayer’s adjusted gross income may be carried forward up to five subsequent tax years. Again, the increased deductibility cap does not apply to gifts made to supporting organizations or to establish or maintain donor advised funds, but it is likely applicable for gifts made to other funds commonly administered by community foundations. This large increase in the percentage of AGI limits is designed to encourage donors to make large cash charitable gifts this tax year, thereby supporting the efforts of nonprofits who are undertaking relief efforts during the pandemic.
3. Increased Deduction Cap for Corporations: Similarly, corporations that make gifts of cash to nonprofits in tax year 2020 are allowed a deduction of up to 25% of taxable income (which was previously limited to 10% of taxable income). This increase in limitation is for cash gifts only. Gifts in excess of 25% of the corporate taxpayer’s taxable income may be carried forward up to five subsequent tax years. Members of partnerships and shareholders of S corporations must each separately elect to use the increased charitable percentage limitation. The exclusion of supporting organizations and donor advised funds is also in effect for the corporate deductibility cap. Despite this bar, corporations will likely be able to take advantage of the increased deductibility cap by making cash gifts directly to other funds or programs commonly administered by community foundations, such as the California Community Foundation’s Los Angeles Scholars Investment Fund (“LASIF”).
4. Increased Deduction Cap for Food Contributions: In order to encourage companies to donate food to charitable organizations that feed individuals in need, corporations that donate food inventory are now able to deduct up to 25% of business net income for the taxable year (which was previously limited to 10% of business net income).
In addition to sponsoring donor advised funds and the COVID-19 LA County Response Fund discussed above, CCF administers various other funds on behalf of donors for the benefit of nonprofit organizations. Funds CCF administers, which will likely qualify for the CARES Act incentives outlined above, include community initiative funds, field of interest funds, restricted funds, and scholarship funds. With over 100 years of experience caring for Los Angeles and its residents, CCF’s mission is to lead positive systemic change that strengthens Los Angeles communities. Through partnerships and innovative approaches, we use our tools to maximize impact, empower communities and strengthen the nonprofit sector for generations to come.
If you have any questions about charitable giving and the application of the provisions within the CARES Act discussed above, please contact us at firstname.lastname@example.org to discuss how we may be of assistance.
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