Charity during COVID: New tax incentives for giving
In ordinary times, the need to support others through charitable outreach is high, as is the desire of individuals and organizations to supply funding and volunteerism to serve those in need.
However, there are events that occur periodically that heighten this demand, and the COVID-19 pandemic has been such an event.
Throughout the Chicagoland area and nationwide, the pandemic has pressured individuals and families in a multitude of ways that have strained charitable organizations to an extent not seen in many years. In short, now is the time that our local charities must serve their constituents at the highest level and, similarly, now is the time for donors and volunteers to step up their levels of commitment to match this increased demand.
Fortunately, we are a community of generous people eager to help others. As such, the federal government has responded with programs and legislation intended to encourage more charitable giving to organizations that directly support those in need.
Most importantly, the 'Coronavirus Aid, Relief, and Economic Security Act' (CARES Act) that was enacted in March created a range of tax incentives for additional giving from both individuals and corporations. Specifically:
Following the passage of the Tax Act of 2017, the standard deduction amount was raised, and as a result it is estimated that more than 85% of filers no longer itemize their deductions on their tax returns. The CARES Act allows individuals who claim the standard deduction to take an additional $300 above-the-line deduction for cash donations to qualified charities. This may seem modest, but the potential of millions of taxpayers making increased donations of this amount would be very significant.
Taxpayers who continue to itemize rather than taking the standard deduction had previously seen their cash charitable deductions limited to 60% of their adjusted gross income. The CARES Act increased the deductible percentage to 100% of a taxpayer's adjusted gross income for cash donations that are made directly to public 501(c) (3) charities (donations to private foundations and donor advised funds would not qualify for this increased percentage). This percentage increase only applies to cash donations and not assets such as marketable securities or tangible property like art, real estate, etc.
The CARES Act also provided financial incentive for corporations to increase their charitable giving. Prior to this legislation, charitable donations up to 10% of corporate taxable income were deductible for tax purposes. The deductible amount has temporarily been raised to 25% of corporate taxable income for 2020.
Finally, recognizing that the economic fallout of the pandemic exacerbated the need for food donations and services, the CARES Act increased the tax deductibility for donations of food inventory. The deductible amount of food donated is now 25% of taxable income, increased from the previous level of 15%. The donations must be made to qualified food pantries.
In sum, while those who are charitably inclined tend to give from their heart to assist those less fortunate, the importance of having a variety of financial incentives to encourage more people to give, and those that do give to consider increased levels of support, cannot be overstated.
With all tax related matters, one should consult their tax advisor with respect to each of these provisions.
At Bartlett Wealth Management, during this crisis we have witnessed many of our clients ratchet up their charitable giving to a wide range of wonderful organizations, as well as increasing personal volunteerism where their skills and time are in great demand. While the pandemic has been immensely disruptive to millions of people, many of us have responded exceptionally to assist our fellow neighbors and citizens. We expect that generous spirit to continue and having incremental financial incentives will serve to augment these critical charitable initiatives.
• Robert H. Dearborn, CFA, CIC, is a senior portfolio manager and director at Bartlett Wealth Management. Melissa Mabley Martin, CFA, CDFA, is a wealth advisor at Bartlett Wealth Management