Q&A #45 – What donor incentives were included in the COVID-19 relief legislation that was enacted in December 2020?
Question: I run a charitable organization, and it’s been difficult to keep track of all the provisions in the COVID-19 relief legislation that was enacted in December 2020. Were there any incentives for donors that I should know about for fundraising purposes?
Answer: You are referring to the Consolidated Appropriations Act of 2021 (P.L. 116-260), which was signed into law on December 27, 2020. In addition to many other provisions (the law is over 5,000 pages long), there are three main donor incentives: (1) the reestablishment (and slight modification) of the $300 “above the line” charitable deduction; (2) the extension of increased limits on deductible contributions for corporations and individuals who itemize; and (3) a special increased deduction limit for certain disaster relief contributions made by corporations.
1. The $300 “above the line” charitable deduction
The $300 “above the line” charitable deduction was first introduced in the CARES Act last year and applied to contributions made in 2020. This enabled donors who don’t itemize their deductions the chance for at least a modest deduction – a benefit that has been especially needed since the standard deduction was doubled starting with the 2018 tax year (which had the result of making the charitable deduction effectively unavailable for many donors).
The Consolidated Appropriations Act re-establishes this $300 “above the line” charitable deduction for 2021, with an important clarification: married taxpayers who file jointly can use the deduction up to $600. As with last year, donors should be made aware that contributions to section 509(a)(3) supporting organizations and donor advised funds are not eligible for this deduction. Also, this deduction only applies to cash gifts.
2. Increased deduction limits for other donors
The CARES Act allowed corporations and individuals who itemize to elect increased charitable deduction for 2020, and the Consolidated Appropriations Act extends these provisions into 2021. These increased limits apply only to cash contributions made during 2020 and 2021, and do not apply to contributions made to section 509(a)(3) supporting organizations, donor advised funds, and private foundations that are not “private operating foundations.”
For individuals, the temporary increased limit is 100% of the donor’s adjusted gross income, computed without regard to any net operating loss carryback. Aside from this legislation, the regular limits are generally 60% of adjusted gross income (although it gets more complicated for donors who donate property and/or make contributions to private foundations).
For corporations, the temporary increased limit is 25% of the corporation’s taxable income. Aside from this legislation, the regular limits are generally 10% of the corporation’s taxable income.
Planning Tip – These provisions present opportunities for messaging to both your small-dollar and large-dollar donors. The $300 “above the line” deduction is a great incentive for small-dollar donors, and you can remind your large-dollar donors of the benefits of increasing their contributions for 2021.
3. Corporate cash contributions for disaster relief
An additional, more narrow provision allows corporations to deduct up to 100% of the corporation’s taxable income for contributions paid in cash for relief efforts in qualified disaster areas.
This special provision was included in the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (part of the larger Consolidated Appropriations Act) and applies to contributions made between January 1, 2020 and February 25, 2021 (so this window is closing quickly). Importantly, this does not include disaster declarations related to COVID-19, and applies only to disasters occurring between December 27, 2019 and December 27, 2020.
Generally, corporations wishing to use this deduction must obtain a special written acknowledgment from the charity stating that the contribution was, or will be, used for relief efforts in one or more qualified disaster areas, although the IRS has recently stated that it will not enforce this requirement for contributions made before February 1, 2021.
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