As you undoubtedly know by now, three weeks ago the Coronavirus Aid, Relief and Economic Security (CARES) Act became law. This is designed to help taxpayers, businesses and nonprofits facing economic hardship in the wake of the pandemic and economic downturn. It appears likely there will be another round of relief packages up for negotiation soon, especially with respect to nonprofits and the Paycheck Protection Loan legislation.
While much has been written about some potential short-term solutions for nonprofit organizations (and much remains fluid), there are a few direct effects on donors and donor-advised fundholders of which we wanted you to be aware.
- Suspension of Required Minimum Distributions (RMDs). The new law temporarily suspends the requirements for RMDs for the 2020 tax year. This is important to retirees, as the RMD calculation for 2020 is based on the retirement account balance as of Dec. 31, 2019. Typically, many individuals use their RMDs to make Qualified Charitable Distributions (QCDs)*. (*Recall that QCDs cannot be distributed to donor-advised funds.) You may still use your IRA to make qualified charitable distributions. However, we would encourage you to consult your financial advisor before doing so, given the suspension of Required Minimum Distributions, and the commensurate drop in the stock market.
- New tax incentives for charitable giving.
- First, the CARES Act creates a universal charitable deduction, albeit limited to $300. The universal charitable deduction is an above-the-line deduction and will be available to taxpayers who take the standard deduction. (Recall that under the 2017 Tax Cuts and Jobs Act, the standard deduction was increased, resulting in fewer people itemizing and thereby eligible for a charitable deduction.) This tax incentive is available for gifts to qualified charities and not to donor-advised funds. It is not yet clear whether the universal charitable deduction will apply past 2020. Although a $300 deduction is limited in scope, in this time of great need in all communities, we would encourage donors where possible to give that amount to organizations for COVID-19 response funds, such as Rose Community Foundation’s R.E.S.P.O.N.D. fund.
- Second, the CARES Act suspends the cap on annual cash contributions. Generally, contributions to public charities are 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 can be carried over to the next 5 years (subject to the original limitations on AGI). While we encourage you to consult with your financial advisor, there may indeed be incentives for donating cash gifts in 2020. (Examples include sales of depreciated stock with cash proceeds to a nonprofit, etc.). Please note, again, this does not apply to contributions to donor-advised funds.
This is, no doubt, an evolving scenario, but hopefully one that will encourage the generosity of donors like you. Please know that our team at Rose Community Foundation is here to help you carry out your philanthropic goals, especially during this challenging time.
We wish you good health and strength.