The CARES Act donation-regulation changes focus on driving support for U.S.-based nonprofits. Cash gifts are deductible up to 100% of adjusted gross income when granted only to operating charities and operating foundations, not private foundations, supporting organization foundations or donor advised funds. Since most people use the standard deduction when filing taxes, the CARES Act allows a one-time, above the line deduction for $300 cash gifts to non-profits. What to do with this new information? Here are answers to some of the questions we've been hearing from donors recently:
1. Can I use the assets in my donor advised fund (DAF) to help my favorite charities weather the COVID-19 crisis?
Yes. Please understand there is no additional tax benefit at this time for donating from a DAF. Now may be a good time to use these assets for their intended purpose.
2. How do I choose or shift my focus areas for philanthropic support?
All non-profits are struggling, as no one is spared at least some negative impact by COVID-19. Many donors are asking their favorite non-profit leaders how they can help most effectively, and they are simultaneously shifting to basic necessities such as food, shelter, clothing and health care, supporting the most vulnerable at this time. Unfortunately, we have seen a spike in domestic violence, child abuse and mental health crisis needs.
Another top of mind issue is helping the non-profit community work together to avoid duplication and maximize operational impact. Helping your community increase access to the care it needs across the board may well mean funding cross-functional/cross-organizational teams between grant-making and non-profit member associations.
3. How can we best plan short-term vs. long-term support? Should we give our entire 2020 allocation from the DAF or foundation now?
Work with the non-profit's leadership to assess cash on hand for 60 to 90 days. Ask your non-profit executive what they need now and what they're concerned about for later in the year.
For example, a donor recently asked her favorite nonprofit if they could make payroll for the next three months and did they need help accessing local banks with Small Business Administration (SBA) loan programs to facilitate access to the Paycheck Protection Program (PPP). This donor changed her previously restricted gift to unrestricted, and made a cash gift from her checking account (for a deduction of 100% AGI for 2020), along with other board members, to help immediate cash flow needs while the nonprofit applies for the payroll loans from the SBA. Additionally, she is planning quarterly gifts from her donor advised fund for the next three to four quarters, the amounts of which will be assessed in May/June once the nonprofit executive director has a better understanding of the organization's position.
4. My wealth management team suggested I consider inter-family gifting strategies at low interest rates. Should I also consider loaning money to charities at a low rate?
Yes. If your favorite charity cannot easily access the forgivable SBA loans provided by the CARES Act, you may want to consider a private loan at historically low rates now. Co-signing a working capital line of credit is also an option to help bridge the funding gap. And if you have a foundation, consider increasing your Program Related Investments (PRI), which often take the form of debt.
5. How can my business support COVID-19 relief efforts?
If your business is a C corporation, the CARES Act provides for an enhanced deduction of up to 25% of the entity's taxable income, up from 10%, for qualified charitable contributions. To be a qualified distribution, the charitable gift must be made during the 2020 calendar year. For qualified contributions made by a partnership or an S corporation, each partner or shareholder must make a separate gift based on his or her tax situation. Previous carryforward limitations apply.
Many business owners support employees' hardship needs via Employee Assistance Programs that allow greater funding during qualified disasters (as COVID-19 has been declared). Qualified Disaster Relief Payments made to employees are also tax deductible to the employer and tax free to the employee. Employee Assistance Programs usually only provide help in traumatic or emergency financial crisis. Under IRS Section 139, however, business owners can make qualified payments to employees for expenses incurred during a qualified disaster not covered by insurance or that count as income replacement: personal, family, living and funeral expenses for example.
Charitable options include Employee Relief Funds held within community foundations or other 501(c)3 organizations with tax deductible contributions. Employer sponsored private foundations can make payments to individuals during qualified disasters and also support non-profits. Additionally, an employer-sponsored donor advised fund can be used directly to fund employees in a qualified disaster, but it cannot make payments to officers, directors or trustees of the company. An employer sponsored public charity allows employees to donate to help one another, thus meeting the public support test. Grants are not limited to a qualified disaster, and can be made for a broader range of payments such as utility bills and living expenses. Leave Sharing Plans allow employees to contribute their PTO to other employees, and are often used during medical emergencies or major disaster hardship. The donating employee is not taxed, but the receiving employee is taxed for those days incurred.
5. What additional estate planning strategies make sense now?
This is also a great time to gift low-value assets to a charitable lead trust, which will support a nonprofit for the term of the trust (10-20 years, usually), and then revert the remainder of assets at the end of the term back into your estate (possibly when asset values are higher).
6. What if I want to support international COVID-19 relief efforts?
While the intention of the CARES Act is to drive funding for domestic non-profits first, plenty of donors want to fund the crisis on a global level. One can still give to the many “friends of" charities based in the US that support global projects. Please note, however, that many of these charities are classified as supporting organizations, not operating charities, and as such, donations to them are not eligible for the deduction of 100% of AGI. They are still deductible at 60% of AGI, of course.
To support the international non-profit community during this time, and ensure that cash gifts are deductible up to 100% of AGI, please look at funding U.S.-based operating charities focused on global programs/reach: CARE, Red Cross, etc. Also, crowdfunding operating charities, like GlobalGiving, can be helpful and educational for donors seeking direct global impact.
7. How can I volunteer during this time?
Remote volunteering can provide incredible impact. Help non-profits improve/upgrade their digital and social media marketing fundraising efforts to take advantage of the CARES Act donation regulation changes. Volunteer to lead or support remote call centers, online advocacy/social media events and fundraising, virtual galas and cocktail parties, webinars, donor education and appreciation.
8. Should I give to COVID-19 relief funds?
Yes. Please consider giving to your local COVID-19 Relief Fund (usually with the community foundation). Two key resources are the national interactive map for COVID-19 relief here and Giving Compass' list + vetting approach here.
9. If I want to fund both non-profits and my local business community, how can I do that?
We are certainly seeing the interconnected nature of our non- and for-profit businesses through this crisis. Innovations in childcare, senior care and frontline worker support abound, and will continue to evolve. Necessity is the mother of invention, after all. Enterprising commercial real estate companies are making empty buildings available for hospital use nationally. The U.S. has approximately 924,000 hospital beds and some estimates are that we will need 3 to 4 million.
Many communities are of course building funds to feed front line workers AND keep local restaurants in business. Below are just a few examples.
In this unprecedented time, this list is by no means exhaustive. It will also continue to evolve as the COVID-19 virus crisis response matures. Each situation is unique, of course, but one thing remains constant: to remain true to their purpose and increase their impact, both nonprofits and donors must partner well, listening and sharing mutual expertise. Business owners have unique opportunities to galvanize community support and build social connectivity with multiple planning and employee assistance tools.