The Coronavirus crisis has decimated lives and livelihoods across the globe. Charities are struggling to help the most vulnerable and are having a hard time keeping up, while many not-for-profits across the company are in precarious financial situations. For example, there are now more than 36 million Americans unemployed; many of them without enough money for food or shelter. The Food Bank network is distributing 100 times more food than normal, yet is currently receiving 50% less food from manufacturers.
Scores of charities across the country are sounding the alarm that they could go under if they cannot find alternative funding. Nonprofits large and small have shut down temporarily, cancelled essential fundraising events and watched helplessly as funds have dried up from both individual and corporate donors. The reality is that many people who would normally donate are now in the need of help themselves.
Furthermore, even before the COVID-19 pandemic, donations to charity were declining. 20 million fewer households donated to charity in 2016 than did in 2000. In the United States, the charity sector makes up for some 10% of the workforce; making it the third largest industry behind retail and manufacturing according to John Hopkins research. Even as the economy starts to open up again and reports of potential vaccines are front page news, there’s deep concern that the contraction in giving to charity may last for years.
Fortunately, you readers of the DWM blog are generally in a financial position to make charitable donations and we expect that most of you do, particularly during fundraisers, giving days and at year-end. We would like to encourage you to consider providing donations and/or your skills to a charity now.
The CARES Act signed into law on March 27th, provides incentives for giving. Since 90% of taxpayers use the standard deduction, the CARES act provides a specific tax deduction in 2020 for up to $300 in cash contributions. Furthermore, in 2020, you can deduct all of your contributions up to 100% of your adjusted gross income (normally 60% is the limit). Also, the CARES act eliminated Required Minimum Distributions (RMDs) for IRAs for 2020. However, if you are 70 ½ or older, you can take money from your IRA and make a Qualified Charitable Distribution (QCD) and, therefore, help the charity and not have to claim any income on the distribution. Lastly, the CARES Act provided a $1,200 economic stimulus to taxpayers with incomes below certain levels. Some recipients of those funds, who don’t need it, are using that money for charity.
Another tax efficient way of giving are Donor-Advised Funds (DAFs), which we have spoken about before. You fund DAFs and get tax deductions in one year and then “grant” the money to charities in future years. This allows you to “bunch” your donations and to reduce income taxes in years when you are in high tax brackets. Furthermore, you can use cash for funding or appreciated securities and therefore eliminate the capital gains tax on the donated securities. Funds in a DAF can be invested and grow and there are no minimum distribution requirements. DAFs are a great planning tool for both income tax and estate taxes.
DAFs have been stepping up grants during the pandemic. Grants given in March 2020 from DAFs were 36% higher than March 2019. Donor advised funds are really a sustaining factor at times like this because people have already irrevocably set this money aside for charity so at a time, like now, it can be used.
Here are a few other comments and ideas on how you might be able to help your community:
- Support the arts. Across the U.S., institutions have closed their doors and many have had to lay off staff. The American Alliance for Museums estimates that museums are losing some $33 million a day and it predicts 30% of them will never reopen without help.
- Don’t forget animals. Many animal shelters are facing reduced staff and volunteer support.
- Donate blood. 13,000 blood drives were canceled in the first three months of 2020 resulting in 375,000 fewer blood donations.
- Put your skills to work. Your organization may be putting together programs to help American families who are struggling. The Foundation for Financial Planning, for example, is raising $1 million and will be providing pro bono financial planning and advice to low-income workers and other groups. I’ve participated in that pro bono work and it is very fulfilling.
- For those SC taxpayers, consider a donation to help “exceptional needs” students with dyslexia, autism, ADHD or physical and emotional needs. There are 90,000 exceptional students in SC, one out of 12 children. And donations to the ExceptionalSC.org, a 501(c)(3), provides a tax credit to SC taxpayers, up to 60% of their tax liability. As such, this amount is currently considered taxes for your federal tax return.
It’s the perfect time to help your community with your money and/or your skills. Each of us have our favorite organizations and causes. Please consider doing something now! In a time of significant need like now, it will definitely be appreciated.