With the needs of our world constantly changing due to the effects of the COVID-19 pandemic, non-profit organizations find themselves having to rethink their operations, short-term missions, and revenue streams. The new charitable contribution deduction provisions outlined in the CARES Act may be an opportunity to attract a new base of donors or get additional contributions from existing donors, however not all non-profit organizations are qualified.
Details of the Charitable Deduction Provisions in the CARES Act
Individuals:
Previously, an individual had to “itemize” deductions in order to deduct charitable contributions. Under the CARES Act, individuals utilizing the standard deduction will be able to reduce adjusted gross income by up to $300 on their 2020 individual income tax return. Further, if an individual itemizes deductions, the previous 60% of adjusted gross income limitation on charitable deductions has been suspended for 2020.
There are some limitations on the expansion. For the expanded deductions, gifts must be made in cash to a qualified organization (more on qualified organizations below). These limitations do not apply to individuals itemizing deductions if they are below the 60% limit.
Corporations:
Corporations have historically had charitable deductions limited to 10% of taxable income. The CARES Act increased the limitation to 25%.
What are qualified organizations eligible to receive expanded gifts?
Qualified organizations eligible to receive the expanded gifts are exempt from tax under Internal Revenue Code 170(b)(1)(A), which includes many of your standard charities, including churches, having broad donor support. Excluded organizations include donor-advised funds, private foundations, and supporting organizations exempt from tax under Internal Revenue code 509(a)(3). To determine if your organization is a qualified organization, you can refer to your Form 990, Schedule A, page 1. Qualified organizations will check boxes 1 through 11. Supporting organization will check box 12.
To maximize opportunities with current and potential donors, qualified organizations should consider including their status in fundraising communications.
