The coronavirus pandemic is taking a tremendous toll on our health, safety, and the economy. It is also impacting charitable organizations and their ability to provide critical services. In extraordinary times like these, with the financial market uncertain, people may feel like there’s not much they can do. But there are still opportunities to help support your community through charitable planning.
Downward Trend in Giving
Prior to this tax year, charitable giving was already on a downward trend. The 2017 Tax Cuts and Jobs Act, which overhauled the tax system and increased the standard deduction for individuals and couples, dissuaded some taxpayers from taking tax breaks for their charitable donations. According to the Tax Foundation, in 2018, approximately 13.8 million US households claimed a federal tax deduction for charitable giving. For the 2019 tax year, the percentage of taxpayers itemizing their deductions (including charitable giving) fell by more than half.
Coronavirus and Charitable Giving
With people understandably concerned about the economy and their personal finances, many are cutting back on expenditures, including donations and charitable giving. Nonprofit groups are starting to see significant setbacks. However, these are the groups that need financial support now more than ever. Charitable organizations help provide essential services and assistance for causes such as human rights, animal rights, social justice, poverty, health research, and environmental protection. Without money, these groups may be forced to close their doors permanently.
The CARES Act
In late March, President Trump signed the CARES Act (Coronavirus Aid, Relief and Economic Security) into law. It is designed to combat the impacts of COVID-19 and stimulate philanthropy in the US. Part of the CARES Act allows for a $300 above-the-line deduction for charitable gifts during the 2020 tax year. That means an individual who does not itemize their deductions on their 2020 tax return can now deduct up to $300 of cash contributions to a qualified charity, on top of the standard deduction. (The 2020 standard deduction is $12,400 for individuals and $24,800 for married couples).
The CARES Act also relaxes the limitations on deductions for individuals and corporations. Previously, the deduction for cash contributions to a qualified charitable organization was 60% of an individual’s adjusted gross income and 10% of a corporation’s taxable income. Under the CARES Act, the 2020 deduction is increased to 100% of an individual’s adjusted gross income and 25% of a corporation’s taxable income. For an individual, these deductions can offset things like salaries, bonuses, dividend payments, interest payments, or capital gains.
Charitable Lead Annuity Trusts (CLAT)
Another tool for charitable planning is the Charitable Lead Annuity Trust (CLAT). A CLAT is a type of trust that provides a payment to a charity every year for a certain number of years, and then at the end of the term, any money remaining in the trust goes to the grantor’s heirs or beneficiaries. The grantor (the person who created the trust) receives a tax deduction for the payments going to the charity, and the charitable organization receives money every year. With the low interest rates that resulted from the coronavirus pandemic, the grantor could receive higher income tax reductions for their charitable giving. It’s an incentive to create a charitable plan or increase an existing one.
Supporting Loved Ones and Family Members
In addition to supporting charitable organizations, people may also want to help their loved ones financially. Under the current gift tax exclusion, an individual can gift as much as $15,000 per person per year, and $30,000 per married couple per year, without tax consequences. While people typically wait until the December holidays to make these financial gifts, giving the money to family members now can help those who are stressed about bills and job cutbacks due to COVID-19.
Other Ways to Support Charitable Organizations
If you are not financially able to support a charity or nonprofit right now, there are plenty of other ways to help. You can donate your time or professional skills. You can help promote the organization and share their materials via social media. Many groups are looking for committee members to help fundraise and strategize their next steps.
Have questions about charitable planning? Please contact the estate planning team at Brian M Douglas & Associates
With careful planning, we have the opportunity to ensure that critical charitable groups and nonprofit organizations continue to operate. If you have additional questions about charitable planning, or would like to schedule an estate planning consultation, please reach out to us at (770) 933-9009.