Now is a Great Time to Give: How the CARES Act Incentivizes Charitable Gifts
As we enter the final month of the undoubtedly tumultuous year that has been 2020, we can look back and see the silver linings found through the tenacious spirit of our community. For Herren Project, this has been especially true as a community and organization. As an organization, Herren Project has evolved and adapted to the unexpected circumstances brought by the pandemic. Likewise, our community has strengthened and grown through online meetings and support groups, weekly live shows with Executive Director Kevin Mikolazyk, and a virtual, cross-country race event.
Despite the obvious setbacks, there has been no shortage of ways for Herren Project to thrive through this shared, world-wide adversity. However, one of Herren Project’s primary funding sources is through donations raised by the many people who participate in charitable races across the country and overseas. Team Herren Project held two virtual events in the spring and summer, but the funds raised were not enough to cover the shortfall of donations due to the cancellation of over ten events. The cancellation of these annual running events left Herren Project and many charitable organizations scratching their heads on how to best raise funds for their essential services, which are needed more than ever.
The federal government came to the aid of organizations like Herren Project, offering solutions. The government incentivizes giving to charitable organizations by passing the Coronavirus Aid Relief and Economic Security (CARES) Act – a Covid-19 tax relief program that encourages charitable generosity. In an unprecedented move, Congress included nonprofit organizations as essential services when they passed the Act. Its purpose is to provide immediate relief for nonprofits that have been impacted financially by Covid-19. Due to the nature of this pandemic, this congressional inclusion has solidified the importance of fighting addiction in our society. As a result, contributions are met with new tax guidelines that encourage donating to charitable organizations such as Herren Project.
As we conclude this historic year, let’s not forget that addiction does not get put on hold through a pandemic. Many people are struggling, especially with the increased burden that Covid-19 has imposed. Now more than ever, the services that Herren Project offers are desperately needed. With funding from running and athletic events postponed or canceled, the vital funds required to meet this increased demand for addiction treatment and support can only come from people and donors like you.
As the year comes to a close and we embark on our “Season for Giving” holiday appeal, we’d like to share information on the CARES Act and changes made to tax-deductible donations in 2020. There are many benefits to giving to people this year while supporting the mission of Herren Project in the treatment, recovery and prevention of substance use disorder.
Please consider a year-end gift today and help us reach our goal of $200,000. Any amount will help save a life.
How the CARES Act works:
Whether taxpayers support natural disaster recovery, COVID-19 pandemic aid, or another cause that’s personally meaningful to them, their charitable donations may be tax-deductible. These deductions reduce the amount of their taxable income.
Previously, charitable contributions could only be deducted if taxpayers itemized their deductions. However, in 2020, taxpayers who don’t itemize deductions may take a charitable deduction of up to $300 for cash contributions to qualifying organizations. For this deduction, qualifying organizations are those that are religious, charitable, educational, scientific, or literary in purpose. The law changed in this area due to the Coronavirus Aid, Relief, and Economic Security Act. The CARES Act also temporarily suspended limits on charitable contributions and temporarily increased limits on donations of food inventory.
New Deduction Available: Under the CARES Act, a new deduction is available for up to $300 per taxpayer ($600 for a married couple) in annual charitable contributions. This is particularly beneficial to people who take the standard deduction when filing their taxes (taxpayers who do not itemize their deductions). It is calculated by subtracting the amount of the donation from your gross income. It is an “above the line” adjustment to income that will reduce your adjusted gross income (AGI) and reduce taxable income.
To qualify, you have to donate to a qualified charity. If you have already made a donation since January 1st, 2020, that contribution would count toward the $300 cap. A gift to a donor-advised fund (DAF) does not qualify for this new deduction.
New Charitable Deduction Limits: As part of the bill, individuals and corporations that itemize can deduct much more significant amounts of their contributions in 2020.
Individuals can elect to deduct cash contributions, up to 100% of their 2020 adjusted gross income, on itemized 2020 tax returns. This is an increase in allowable deductions, up from the previous limit of 60% and only for 2020.
Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%.
The new deduction is only for cash gifts that go to a public charity. If you give cash to, say, your private foundation, the old deduction rules apply. And while the organizations that manage DAF’s are public charities, you do not get the higher deduction for donating cash to your DAF. These new limits do not apply to gifts of appreciated stock.
If your assets are substantial enough to give more than your income this year, you won’t lose the deduction for the excess amount. You can use it next year, as has always been the case.
Required minimum distributions waived in 2020 for most donors: Required minimum distributions (RMD) for individuals over age 70 ½ is suspended until 2021. This includes distributions from defined benefit pension plans and 457 plans. The RMD is an attractive way for donors to make a significant charitable gift directly from their IRA to a charity through a qualified charitable contribution (QCD) while avoiding taxable income. The suspension of the RMD may dampen the incentive for a donor who makes a gift from their IRA to count toward that minimum. However, the tax benefit of the QCD remains.
Donors directing a QCD to charity this year (up to $100,000 per individual) will still reduce their taxable IRA balance. This allows all taxpayers, itemizers and non-itemizers alike, to direct gifts from their IRA to charities in a tax-efficient manner.
More information about these changes is available on IRS.gov.
The pandemic has brought about many challenges in 2020, but we must recognize the epidemic within the pandemic. As the pandemic continues, dislocation and connection are threatened, which puts all affected by addiction at increased risk. Our community needs our resources more than ever. We applaud the government in its efforts to provide incentives for giving to public charities, like Herren Project.
Please consider a year-end donation to Herren Project today through December 31st.
Together we will make a difference.