Last night President Trump signed the new economic stimulus package that provides $900 billion in emergency relief funds. Although the discussion has understandably focused on the $600 stimulus checks, there are also significant provisions associated with charitable giving and the nonprofit sector.
Keep in mind that these are not the primary reasons a donor makes a gift. Your mission matters the most. Tax planning affects how they give, not why.
1. Extension of temporary, universal charitable deduction for 2021. The CARES Act had created a new universal charitable deduction of up to $300 for contributions made in 2020. The new stimulus package has extended this opportunity through 12/31/21. Everyone who claims the standard deduction for 2021 (tax returns filed in 2022) will be able to claim this special charitable deduction for gifts up to $300 (note: this does not include in-kind gifts and also does not include gifts made to Donor Advised Funds). Unlike the original CARES Act version, it appears that this stimulus package for 2021 now also provides a $600 deduction in 2021 for married couples filing jointly.
Practical implication: This is potentially beneficial to your annual giving program. Be sure to incorporate this opportunity into your marketing plans for 2021. Your website should reflect this temporary opportunity.
2. Extension of temporary changes to charitable deduction limitation. For those who itemize their deductions, typically a donor can claim a charitable deduction up to 60% of their Adjusted Gross Income. The unused portion above that amount, if there is any, would then roll to the next year (and for up to five extra years… a total of six tax returns). The new stimulus package has extended the opportunity for a donor to claim up to 100% of AGI for cash gifts made through 12/31/21.
Practical implication: Through our work with client organizations, we observed in 2020 that some donors who were considering larger contributions accelerated their intended commitments because of this temporary opportunity. In several cases, this decision was motivated by advice the donors received from their professional tax planning advisors. Be aware that some donors and their advisors are thinking in these terms. Don’t provide tax advice to donors. Do mention that you have seen other donors work with their advisors on this opportunity and suggest that they seek advice from their own professional advisor(s) if they are interested in learning more.
3. Save Our Stages – $15 billion of new relief. The stimulus package provides $15 billion for live venues, independent movie theaters and “cultural institutions.” This relief applies to both nonprofit and for-profit businesses. This relief is a welcome result of significant efforts by those involved in the pursuit of the Save Our Stages bill over the last several months. Rather than consider Save Our Stages separately, Congress appears to have incorporated Save Our Stages provisions into the new overall stimulus package. As of this writing, the exact meaning of the terminology, such as “cultural institutions,” remains unclear in terms of which nonprofit organizations will qualify for relief. Based upon the original Save Our Stages provisions, it appears that a qualifying organization must show that its revenue declined by at least 25% in 2020 compared to 2019. It also appears that grants are limited to 45% of an organization’s 2019 revenue and that the relief is also capped at $10 million per organization. The authors of the Save Our Stages bill state that the grants will be managed through the Small Business Administration and that their intent with this portion of the stimulus package is to cover six months of payroll and costs such as rent, utilities, and maintenance.
Practical implication: If your organization’s mission and revenue are associated with live performances, act quickly to determine whether you should apply. Monitor the SBA website. Contact your organization’s CPA or other advisors. Given the extreme impact COVID-19 has had upon the live entertainment aspect of our economy, these funds will likely be expended rapidly. There are indications that application priority will be given (during the next two weeks only) to organizations that demonstrate they have lost more than 90% of their revenue.